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Have banks lost IT?

Further to yesterday’s dialogue around TQM, I got into a conversation
with a couple of folks about the fact that we don’t have real STP, Straight
Through Processing, in most financial firms.

One senior manager said that he had started focusing upon
STP back in the 1970s and couldn’t believe that, thirty years later, we still
do not have it.

Most of the people I talk with, when asked: what levels of STP do you have, give me
wishy-washy answers of oooh, around 60 to
70 percent.
Around is not good
enough, the bank should have an exact level of processing straight through.

In fact, we then got into a much longer dialogue around
enterprise management and monitoring systems, and the fact that most firms
struggle with enterprise management.

It is down to the very nature of fragmented structures,
legacy systems, merged and acquired operations, that make the enterprise view

Hard but achievable, so why is it not achieved?

A view put forward was that it does not make sense for some to
have this view.

It makes you far less accountable if you cannot measure your
complete operation, than if you can.


Apparently, for some, it is better to avoid end-to-end
processing and full enterprise dashboards if it means that the CEO cannot hold
the COO, CIO and CxO to account.

In other words, TQM and STP is counterproductive for some,
as it is better to fudge it and keep the processing in a separate, fragmented
structure than in an enterprise based, integrated one.

This discussion is so counter-intuitive to common sense that
my radar of ridiculousness was raised.

It was then heightened by a comment from elsewhere that the
CIO’s main role is to block change.

A CIO wants to maintain the status quo as far as possible,
not to change things and risk messing up.

The CIO is there to stop the business pushing the envelope
and to keep things just so.

Most CIO’s only keep their jobs for four years.

The first year is trying to find ways to
fix the crap their predecessor was challenged with or put in place.

The second year is choosing new solutions and planning the
implementation of change.

The third year is struggling to make the change and finding
your peers and colleagues asking questions about what you are doing.

The final year is being found out over-promising and
under-delivering and getting the call from the CEO to think about garden leave
whilst you look for a new role.

This is why most financial firms have not solved the
enterprise view or delivered maximised levels of STP across the board.

How do you solve the problem?

Either outsource all the IT to someone who can do it for you
or put your trust in the CIO, back him or her to the hilt and let them make the
change the firm needs to be effective for the future without the Sword of
 hanging over their head.

Both choices are tough, which is why most do not make one,
but avoiding the tough decisions is even worse if it means you only fudge it or
have a rough guess of your processing operations and no exact knowledge.

So the message has to be that if you really do have no
enterprise view of risk and operations, no idea of your straight through
processing levels and no capability to see your way out of fragmented systems
unfit for the future, then sort it out or you really will lose I.T.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Outsourcing may well be a good route forward, but perhaps it’s more about process, product or line of business than IT per se. Banks are full service providers, and few of them are able to focus enough investment, time and energy on a particular process to take it to best of breed. However monolines – of which national ACHs could be an example, though there are lots – tend to have excellent operational metrics such as STP.
    For example, the most critical element in STP in cross-border payments is getting the instruction complete, accurate and unambiguous at first point of entry. Getting that right along with other things results in STP of well above 99%; few banks can prioritise the resource to get to that level.
    It does beg the question, are there other processes and product lines that could be far better delivered by an industry utility? And who should take the lead on that – banks, utilities, vendors..?

  • Chris,
    Having been on the vendor side of STP solutions for a quarter of a century and a bit I emphasize with the sentiments,comments and the depressing conclusion you come to. I would also like to add that vendors are often the easy excuse for projects or initiatives that can be grouped together, to be blamed for failure and whilst obviously some are better than others no vendor enters an STP project for it to fail; we move heaven and earth to fix stuff that doesn’t work, it’s what we do. Time and time again the failure of projects or their failure to deliver what was promised, is because commitments are made with no reference to reality, be that cost, resourcing, deadlines or even what is possible within the bounds of reality. Just because you need to cut costs, increase revenue/profits and thus arbitrarily set budgets and deadlines whilst not seeking the realistic input of people that know what it takes, doesn’t make it so.

  • Very good article,
    However, as it points out, quite rightly that the source problem is managers not wanting to make decisions (as in many (most ? all?) other industries it must be said)the question begs, why is that ?
    Surely managers are taught how important it is to take some risk sometimes ? (better to have taken risks and occasionally failed than never to have taken a risk at all morally sound principal).
    I believe the answer is simple. Firstly, too many people today have their salaries tied to results. This is a completely stupid concept because it breeds a ‘rigid’ system in that, in order to have a promotion (=salary rise) you must achieve your personal ‘goals’ / targets, etc…. which , although containing a certain element of ‘personal advancement/fulfillment, etc … have usually an unhealthy amount of ‘financial’ aspects integrated such as ‘efficiency drive’ , i.e. this year you must save money. So, going back to the original topic, without STP payments, there is a huge amount of inter-account transfers which function through 1 (or more) intermediary ‘clearing’ banks. Through this system the banks, all banks currently make a huge amount of money for doing absoluetly FA (and I’m not talking about football here folks). So, who is going to champion the full and efficient introduction of STP when the fundamental result = huge reduction in profits for the banks = loss of part or all of ‘bonus’s/promotions/etc… for everyone in the decision chain. You get my point? Not to mention the cost of implementing this wonderful system ! There is a solution, its called legislation, backed up by (huge,nd enforced) fines for banks who do not comply …. but we all know that will never happen, not in 30 years, not in a million…. I’m now going to get (another) beer and contemplate my current problem , which is how to find out who has stolen my money (and why) on a dozen international transfers, and determining which if any of those has been sent STP ! … call your bank ! I hear you cry, but believe me its not as easy as it sounds … by a long way
    (Recommended listening tonight – The Clash – (Daddy was) A Bank Robber (he worked at 🙂

  • I agree with Neil, process management, Business Process Modelling , execution, is now starting to take a firm hold within organisations. When STP was talked about in the past, it was automating system integration. Now the business processes are better understood with great tooling, this can only benfit true STP.
    Paul Gallen


    Only when management’s focus and measurement is based upon operational efficiency (such as velocity of a transaction or velocity of account or customer being opened, resources usage, etc ) then true STP based project takes light. While most of these measurements are only for back office operation rather than front/middle office. Often the case is that the back office operations are mostly outsourced/co-sourced. These measurements are included into Service / Operational level agreement. Then management does not care whether the SLA/OLA is met using STP or groups of low cost resources as long as the outsourcer met these agreements. Also, CIO (of a type mentioned by Chris) is happy because he/she do not need to take the risk of change. Cheers, Harinath Venkatasubbiah

  • A major part of the problem is, no one bank in the chain can achieve very much on its own. In fact there is a ‘first mover disadvantage’ – return on the investment won’t come until all the other banks in the end to end process chain have adopted the new standard, process, whatever. To John’s point, even a brave manager will struggle with his career if he puts that kind of investment forward very often! It is relatively easy to design a significantly more efficient end-to-end process, the problem is the organisational behaviour of the incumbents will always favour the status quo. That behaviour isn’t wrong, it’s entirely rational. In my view the only way significant improvement will come about is from the outside – a new entrant (or a known player with a new entrant service), to which transactions can gradually migrate, until the old process is starved to the point of exhaustion. It takes far less time than establishing a new ‘standard’ to which all should adhere, but never do. I once got myself into deep water when, deeply frustrated in some industry meeting, I responded to ‘so how long will it take’ with ‘do you want that in units of SWIFT time, normal time or Paypal time?’ The worrying thing is, countries and economies that don’t have the legacy infrastructure and processes are not held back by it (nor by the regulation that comes with it.) Time is not our ally.

  • With a nod to John,
    there is a controversial assumption here – that banks want STP. If one looks at the high level interests of a bank, and of banks as a tribe, there is little to suggest that they want STP. Others may want it, but banks? The case has to be made before it can be assumed.

  • Thank you Chris for raising this issue, which is clearly a difficult subject for some if not all financial service providers.
    But it is not all dire in the industry – several leading banks and financial services companies realize they need to get a holistic grip on the enterprise architecture and rationalize the thousands of applications most of them are maintaining at any given moment.
    On a quarterly basis, top IT staff at these banks come together to form the Global CTO Council for the Financial Services Industry (http://www.alfabet.com/en/news/press-releases/top-financial-institutions-and-alfabet-launch-global-cto-council-to-standardize-processes-in-financial-services-industry/ which has been issuing white papers on their perspective for technology portfolio management and enterprise architecture. I’d encourage you to check out some of their white papers at http://www.alfabet.com/en/resources/financial-services-industry-perspective-on-application-portfolio-governance/ and we’d be interested to hear your thoughts.