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Bank dinosaurs are bank’s worst enemy

I was talking about technology the other day and continue to be amazed by the speed, breadth and depth of how it is changing our world.

The amazement is for people of my generation who grew up with technology being expensive and slow to change.  For example, in 1991 I sold a system to one insurance firm that included a processor with 128KB of memory and 16MB of storage.  That cost over £100,000!  Today … about £5 as this would be a three-year old mobile smartphone or less.

The Moore's law of doubling power and halving costs every 18 months continues.

Today, the focus is much more about the impact this has on our lives, loves and relationships, than business accounting services and systems.

By way of example, here are two examples of dramatic change.

Google and Apple.

Google published their founder's letter last week and reviewed a little bit of the history of net and search.  Here's my summary:

In 1990, the very first web page was created.

By late 1992, there were only 26 websites in the world.

When NCSA Mosaic (the first widely used web browser) came out in 1993, every new website that was created would get posted to its "What's New" page at a rate of about one a day.

In 1994 there were around 10,000 internet users websites and 3 million internet users.

In December 1995, Altavista launched a search engine which had indexed 16 million documents.

By the end of 1996, it had 19 million searches daily and, by 1997, there were 100 million internet users.

In 1998 Google launched with an index of 26 million pages.

By 2000, this number increased to 500 million pages and just over 360 million internet users.

Today, there are 1.3 billion internet users, and 3.5 billion mobile subscribers and Google indexes over 20 billion internet pages.

Google search and index a terabyte of information in just 68 seconds over 1,000 computer servers and run over a billion searches every day!

OK, OK.

Great advert for Google.

The point is that this demonstrates the inexorable change to our world the internet has made in less than two decades.

Particularly in the last five years as broadband and smartphones with internet access have grown into ubiquity in many developed and, to a large extent, emerging economies.

Now here's the killer.

The killer App that is.

Like many, I noticed the Apple adverts for their billionth app download the other day.

The stunning thing about this figure is that it took only nine months to reach a billion downloads.

Here are a few more stunning figures:

There are an estimated 30 million combined iPhone and iPod touch users around the world and yet the iPhone generates 33% of all smartphone traffic worldwide.

The Apple App Store had more than 35,000 applications at the end of April 2009.

iPhone owners download an average number of 37 apps in total to their devices, while G1 (Google phone) owners download an average of 40.

The sheer dominance of Google and Apple is the reason why Google's CEO Eric Schmidt is being investigated for anti-competitive activities, as he sits on both boards.

But that's not the point.

The point is that the slow but inexorable change of the internet world combined with the massive and fast change of today's technologies (think Susan Boyle, 186 million video views in under a month; think Facebook with over 200 million users; think Twitter growing at a speed of over 3 million new users a month) is why this stuff is important to financial services, as it is fundamentally changing our products, services and reach.

However, for many banks, the people who make decisions about these areas are probably of the generation who remember 128KB with 16MB of storage costing £100,000 and that technology is expensive and difficult to change.

They therefore block changes that could be transformational because of this view.

They block the ability to move the bank into simple, low-cost 21st century technologies because of this view.

They tie the bank to legacy architectures that date back to the 1980s.

These technologies are expensive and difficult to change because of the very nature of the technologies being used, and upon which they were designed and built.

In other words, these crocks of boardroom decision-making tie the bank to the 1980s or before, and stop the bank becoming a 21st century iPhone App or Google Gadget.

If the predominance of your Board falls into this category … kick 'em out as they're dinosaurs.

Ah well, I'm off to play with my iFart app*.

* iFart Mobile is #20 in the paid-for downloads on the all time Apple App Top 20 according to the latest research report from Contagious magazine.

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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  • Chris,
    I understand where the sentiments in this post are coming from. As the innovator in a big bank, I am often frustrated by the pace of change.
    But there’s no point calling for management removal, because that is never going to happen. If it were so simple, it would already have happened.
    But there is an inflection point coming, and that is that Gen-Y is now in its first management job. Soon, they’ll be divisional leaders. Within the decade, they’ll start to be in charge.
    The real question is whether we have another decade as bankers before we make the shift.

  • Chris Skinner

    Thanks James
    The point about dumping dinosaurs is intended to be fascetious but also true.
    Unfortunately, banks don’t dump dinosaurs soon enough and, as a result, take years to evolve and keep up with new competitive business models. Example of Chip & PIN versus mobile being case in point: http://thefinanser.co.uk/fsclub/2009/04/why-mobile-banking-takes-so-long.html
    Your last thought: do we have a decade to make the shift, is the critical one.
    I don’t think you do … but then, I’m only talking from an observer’s viewpoint outside the corridors of deep pile carpeted bank HQ’s 😉
    Chris

  • Hi,
    I would concur that the past experience of board member’s hampers change.
    Another aspect that actively prevents change though, and which costs large banks billions of $, is the fact that their IT departments have hundreds of applications, 80 or 90% of which duplicate functionality.
    A bank that will remain nameless that I know has upwards of 600 applications just for their trade and securities division and each application costs millions of $ to evolve and maintain each year (and we won’t even talk about quality of these applications which is another issue!)
    One might be tempted to ask how on earth can a bank allow itself to get into this situation? The answer lies in a number of areas.
    Firstly no one senior enough is truly held to account for this awful wastage of money.
    Secondly most IT managers are wholly engaged in ensuring that the bread-and-butter of their existence continues in the form of their team and their applications; this is especially true in Banks that rely on huge amounts of outsourced labour and outsourced application build and support.
    These teams are paid to ensure that they can continue to bill the client; it is not in their interest to help the banks save money; their interest is to ensure that the bank spends money.
    It is a rhetorical question of course, but which external vendor is going to turn around and say, “Actually I won’t supply that because you already have it?”
    Of course whether banks truly realise the degree to which functions are duplicated is another question.
    The end result is easy to see however; enormous chains of interacting applications that provide very little value add in the chain of processing.
    The scale of this problem is easy to underestimate ; but reality is that most IT teams have a vested interest in maintaining the status quo and they often send messages upwards that jerk the chain of “risk” and effectively emasculate senior IT managers and executives.
    Until senior IT executives show courage and conviction, this sorry state of affairs will continue.
    I should add however that it is only by outsourcing some areas that some banks can even claim to offer any kind of service ; without a degree of outsourcing I think the service levels offered by banks would be appalling ;
    Banks have a tendency to waste huge amounts of money internally without focusing on the real reason for their existence which is to serve their client, and in return, earn some money for themselves.
    MSUN

  • Hi,
    I would concur that the past experience of board member’s hampers change.
    Another aspect that actively prevents change though, and which costs large banks billions of $, is the fact that their IT departments have hundreds of applications, 80 or 90% of which duplicate functionality.
    A bank that will remain nameless that I know has upwards of 600 applications just for their trade and securities division and each application costs millions of $ to evolve and maintain each year (and we won’t even talk about quality of these applications which is another issue!)
    One might be tempted to ask how on earth can a bank allow itself to get into this situation? The answer lies in a number of areas.
    Firstly no one senior enough is truly held to account for this awful wastage of money.
    Secondly most IT managers are wholly engaged in ensuring that the bread-and-butter of their existence continues in the form of their team and their applications; this is especially true in Banks that rely on huge amounts of outsourced labour and outsourced application build and support.
    These teams are paid to ensure that they can continue to bill the client; it is not in their interest to help the banks save money; their interest is to ensure that the bank spends money.
    It is a rhetorical question of course, but which external vendor is going to turn around and say, “Actually I won’t supply that because you already have it?”
    Of course whether banks truly realise the degree to which functions are duplicated is another question.
    The end result is easy to see however; enormous chains of interacting applications that provide very little value add in the chain of processing.
    The scale of this problem is easy to underestimate ; but reality is that most IT teams have a vested interest in maintaining the status quo and they often send messages upwards that jerk the chain of “risk” and effectively emasculate senior IT managers and executives.
    Until senior IT executives show courage and conviction, this sorry state of affairs will continue.
    I should add however that it is only by outsourcing some areas that some banks can even claim to offer any kind of service ; without a degree of outsourcing I think the service levels offered by banks would be appalling ;
    Banks have a tendency to waste huge amounts of money internally without focusing on the real reason for their existence which is to serve their client, and in return, earn some money for themselves.
    MSUN

  • @James bank board members definitely think anything will take more than a decade to happen, you must have heard the ATM argument before (innovators who claimed it was imminent waited 10 years to see their vision materialize). Then the generational replacement you’re mentioning will take close to 20 years (this is something we more or less can take for granted because of biological facts).
    Startups definitely think anything will dramatically change in less than 5 years.
    I’m not sure there can be real process oriented/rational decision making that can reconcile this within actual organization.
    As usual, History will be written by the victors.

  • @James bank board members definitely think anything will take more than a decade to happen, you must have heard the ATM argument before (innovators who claimed it was imminent waited 10 years to see their vision materialize). Then the generational replacement you’re mentioning will take close to 20 years (this is something we more or less can take for granted because of biological facts).
    Startups definitely think anything will dramatically change in less than 5 years.
    I’m not sure there can be real process oriented/rational decision making that can reconcile this within actual organization.
    As usual, History will be written by the victors.

  • Hi Chris,
    Thanks for this post Chris. As I agree with your point, I posted the link on Twitter.
    I had feedback from an Internet veteran (@billcpu) regarding figures you mentionned “In 1994 there were around 10,000 internet users”. Bill wrote me: “No, no, there were approx. 10,000 ‘web sites’ (and NewsGroups) in 1994 (out of 3m Internet hosts). Who is right?

  • Chris Skinner

    Hi Jean-Christophe
    I got that figure from my previous blog about Google:
    http://thefinanser.co.uk/fsclub/2009/02/do-google-rule-the-world.html
    where their Chief Engineer, Nelson Mattos, presented at a conference.
    Going through other searches, it looks like Nelson quoted the wrong numbers:
    http://www.unc.edu/depts/jomc/academics/dri/011/growth.html
    “In 1994, a mere 3 million people were connected to the Internet. By the end of 1997, more than 100 million were using it.”

  • Chris Skinner

    Hi Jean-Christophe
    I got that figure from my previous blog about Google:
    http://thefinanser.co.uk/fsclub/2009/02/do-google-rule-the-world.html
    where their Chief Engineer, Nelson Mattos, presented at a conference.
    Going through other searches, it looks like Nelson quoted the wrong numbers:
    http://www.unc.edu/depts/jomc/academics/dri/011/growth.html
    “In 1994, a mere 3 million people were connected to the Internet. By the end of 1997, more than 100 million were using it.”

  • Chris Skinner

    Hi Jean-Christophe
    I got that figure from my previous blog about Google:
    http://thefinanser.co.uk/fsclub/2009/02/do-google-rule-the-world.html
    where their Chief Engineer, Nelson Mattos, presented at a conference.
    Going through other searches, it looks like Nelson quoted the wrong numbers:
    http://www.unc.edu/depts/jomc/academics/dri/011/growth.html
    “In 1994, a mere 3 million people were connected to the Internet. By the end of 1997, more than 100 million were using it.”

  • Dave Hanna

    Just as emerging markets went from zero communications to mobile, the emerging e-finance users will simply create their own vehicles if they are stuck in a walled garden. Remember a company called x.com, now Paypal? Early adopters don’t balance a checkbook because they don’t have one, no need.
    If there is no elasticity in a process nor a bridge, someone comes along and side steps and creates a new solution and the old stalwarts have to catch up. Everyone in banking is aware we just sit tight with the old wait and see attitude.

  • Dave Hanna

    Just as emerging markets went from zero communications to mobile, the emerging e-finance users will simply create their own vehicles if they are stuck in a walled garden. Remember a company called x.com, now Paypal? Early adopters don’t balance a checkbook because they don’t have one, no need.
    If there is no elasticity in a process nor a bridge, someone comes along and side steps and creates a new solution and the old stalwarts have to catch up. Everyone in banking is aware we just sit tight with the old wait and see attitude.

  • Dave Hanna

    Should have added that you can take a photo of a check from your iPhone and deposit it to your USAA account, pay bills over internet, mobile or IVR and aggregate all your financial/loyalty data in one place accessing via internet/mobile and a mini statement is sent via sms or twitter with updates and reminders as to any activity.
    I am sure someone is working on taking a picture of cash, unique serial number and value and will deposit that and then take out of circulation-(humor) now what?

  • Dave Hanna

    Should have added that you can take a photo of a check from your iPhone and deposit it to your USAA account, pay bills over internet, mobile or IVR and aggregate all your financial/loyalty data in one place accessing via internet/mobile and a mini statement is sent via sms or twitter with updates and reminders as to any activity.
    I am sure someone is working on taking a picture of cash, unique serial number and value and will deposit that and then take out of circulation-(humor) now what?