The SaaS Effect: Sopra Banking Software COO On A SaaS-Based Approach to Banks’ Digital Transformation

The line between traditional banks, fintechs and other technology providers has started to blur over the past few years. Once seen as competitors, banks and fintechs are now becoming strategic partners, allowing banks to introduce new offerings and accelerate their time to market without having to build in-house or invest in new solutions.

Nearly three-fourths (74%) of banks see this kind of collaboration as “crucial” to their futures, according to Sopra Steria and Sopra Banking Software (SBS)’s 2024 Digital Banking Experience (DBX) Report.

“The organizational lines between banks, fintechs and other third-party technology providers will only continue to blur as banks move away from legacy systems and take a SaaS-based approach to digitization,” said Sopra Banking Software Chief Operating Officer Tobias Unger.

Sopra Banking Software (SBS) has spent the past decade-plus reimagining how banks and the financial services industry operate in an increasingly digital world. The company works with more than 1,500 global financial institutions and lenders, including Barclays, Santander and Societé Generale.

Now, as SBS supports banks’ digital transformation journeys, it’s also evolving alongside them. The company’s shift to a SaaS-first model is part of this evolution, and mirrors the shifts that banks and financial institutions are undergoing. We sat down with Unger to discuss this transformation.

1. Before entering the software space, you were working on the other side of the banking industry at institutions like Merrill Lynch, UBS Investment Bank and Falcon Private Bank. What spurred the transition to software?

I spent most of the first decade of my career focused on Financial Services, both as an M&A advisor and principal investor. I really enjoyed the analytical and client-facing part of the job, but soon realized that my true passion was for leadership, and more specifically for designing and building new operating models and leading organizational transformations.

One of the first challenges I encountered was implementing a new strategy for a private bank that necessitated, amongst other challenges, a complete re-platforming of the core banking system as well as the introduction of an operating model relying on partners to run most of our applications. This was at a time when SaaS was not a standard term used as widely as today. Additionally we used the opportunity to digitize many of our core processes and introduce self-service solutions for clients. Considering that we’re still talking about the same things for the vast majority of the financial industry, it’s hard to imagine that replatforming IT systems and building new digital business models were critical priorities ten, and even 15, years ago. But it just shows how long it takes for an industry to fully embrace and transition to new technologies, and ways of working. Of course, some of the technologies I was focused on were much different to those that organizations are working with today. However, the key point has always been to understand where organizations’ pain points and inefficiencies lie, and then figuring out how to solve those with technology.

Having been on the other side of banking for years, I was able to leverage this firsthand experience around how institutions were approaching digital transformation—including the specific services they were seeking out, implementation challenges they were up against, and where they were looking for the most external support—to create software and service models that catered directly to these needs.

Transitioning out of the banking space felt like a big leap at the time, but now, the divide between traditional banks and third-party technology providers has narrowed significantly and working in ecosystems is much more common than before. At SBS, for example, we act as an extension of our clients’ internal teams as we’re getting them up to speed with new software integrations and digital tools. While I’m no longer working directly at a bank at this point in my career, I still feel fully embedded in the financial services industry.

1. Banks and financial institutions are going through similar transformations now, with many looking to implement fully digital and software-centric models. How do you see this trend continuing to take shape?

Much like my personal career journey has seen the blending of traditional and digital financial services, I think the organizational lines between banks, fintechs and other technology providers will continue to blur as banks move away from monolithic legacy systems and incorporate standard software solutions from partners.

For instance, we’ve already seen many banks move away from a fear-based attitude towards fintechs—who at one point were thought to be taking away banks’ market share—and instead begin to look at how they can collaborate with one another. Most banks have no shortage of products, systems and operations on their lists of digital priorities. Because of this, working with fintechs and technology companies to provide some of these pre-built offerings has become a much more attractive option than building everything themselves.

In addition to the financial industry’s growing investments in digitization as a whole, the ways that organizations are approaching digitization are also evolving. With software in particular, banks and financial institutions used to host all of their digital applications on their own infrastructure, or “on-premise.” They were responsible for everything including routine updates, maintenance and data backups that can require significant time and resources—especially in large, global organizations.

Now, advances in public and private cloud offerings allow organizations to take a Software-as-a-Service (SaaS)-based approach to digitization. This involves far fewer operational burdens on the banks’ side, allowing them to adapt and add new capabilities at a pace that’s much more aligned with the rate of innovation in the software industry.

While the SaaS model is certainly not novel anymore in enterprise software thanks to players like Salesforce and Microsoft, it is still relatively uncommon in core banking software. I am convinced though it is only a matter of time for it to attain much more widespread adoption in the industry.

1. What benefits does the SaaS model offer to banks over more traditional approaches to financial software?

There’s an array of benefits–from reduced upfront costs, to instant updates, to the ability to scale with banks and evolving market needs.

Consider a service like instant payments, for example. Banks and financial institutions around the world are scrambling to get their systems ready to accommodate new systems and regulations, such as Europe’s Single Euro Payments Area (SEPA) rules and the recent launch of the FedNow Service in the U.S.

On-premise software’s routine nightly updates and daily batch processing prevents banks from processing these payments in real time and at all hours of the day. Digital SaaS offerings, on the other hand, can be implemented quickly on top of existing banking systems, and then scaled to keep up with increasing instant payments transaction volumes as adoption grows.

The cloud-based nature of SaaS systems also offers autonomous availability 24 hours a day, 365 days of the year, so banks don’t have to worry about dedicating entire teams to manage their instant payments functions.

These same SaaS principles can be applied to virtually any service that banks or financial institutions want to offer—and, ultimately, rolled out organization-wide.

1. You joined Sopra Banking Software at what seems to be a pivotal moment in the company’s transition to a cloud and SaaS-first software model. Can you tell us more about that shift, and how companies can evolve their internal operations to adapt to new market demands?

SBS is a subsidiary of the Sopra Steria Group, a global technology consultant that’s been on the front lines of digitization for more than 50 years now. This means we have always had first-hand insights into the digital challenges and opportunities that financial institutions are facing. We have continuously evolved together with our clients and are doing so as they adopt new technology and new operating models.

Our shift to a SaaS-first model is part of this evolution, and a direct reflection of the shifts that banks and financial institutions are undergoing. In addition to moving our entire suite of products to the cloud, we’re doing the same with our internal systems and processes. For example, we have been developing in the cloud for years now and more recently have started using AI tools to develop better and faster.

1. How does Sopra Banking Software plan to continue transforming its internal operations in response to this market shift?

To start, we’ve strengthened our partnership with AWS—the primary cloud provider for the Sopra Banking Platform and Sopra Financing Platform. We recently joined the AWS ISV Accelerate Program, which will enable us to scale the delivery of our cloud-based offerings not just in Europe, but in the U.S. and around the world.

SBS also operates in more than 15 markets around the world, and has both acquired and built multiple new software offerings over the years. Part of my role—and SBS’s continued transformation as a company—is focusing on bringing all of our capabilities together in a single global model that reinforces each of our individual market and product strengths. We are here to help our more than 600 clients on their individual journeys leveraging the breadth of our portfolio of software products. To this end, we are investing more than 40% of our software revenue into R&D to continue to provide world-class products to our clients.

As we see increased demand globally from banks and financial institutions that want to approach digital transformation with the flexible, modular nature of SaaS-based products and services, we’re committed to staying on this course and providing them with the solutions they need to help them grow their top-line, while simultaneously lowering their total cost of ownership (TCO), time-to-market (TTM), and reducing risk in their operations.