In a dialogue the other day about payments infrastructures, and building on my comments that all payments innovations are rubbish because they sit on creaking and out-of-date legacy technologies, a colleague stated that it was over-egging the case to say that all the old infrastructures needed to be destroyed and rebuilt.
They likened it more to a City that has been built over time.
You don’t destroy the City because it has old buildings. You basically build anew where needed, renovate where necessary, repair if required and destroy only if you have to.
Now I’m of a slightly different world I suppose. My City is more like Las Vegas than Rome, and here’s where the analogies work well.
Rome is a City of several millennia, with ancient monuments and statues that are now representative of the core of the emergence of modern civilizations. The Forum, Colosseum and Ancient City spaces blend well with the more modern developments.
Do you destroy the foundations of Rome to enable the modern City to thrive?
No … although many would like to see that happen.
Instead, Rome has adapted through the centuries, and today’s modern buildings – such as the Viktor Emmanuel II Monument – sit easily alongside yesterday’s foundations.
Sure this constrains the City’s ability to grow and compete, but it also means that the core essence of mankind is preserved below.
Now we look at Vegas, a City that was built in the desert sands only a few decades ago. A City of modern splendour, that replenishes itself regularly and reinvigorates itself to maintain leadership as the adult destination for entertainment worldwide.
Vegas has demolished nearly all of its hotels from Presley and Sinatra’s days, and rebuilt them into stunning new temples for modern mankind.
The only remaining hotel from the Presley days of any significance is the original Hilton hotel where he played nightly. It’s an OK hotel but, when compared with the opulence of the Bellagio or functionality of the Mandalay Bay, it sinks into obscurity.
This is the core challenge for Vegas hoteliers: how to compete based upon when to repair and renovate versus when to replace and replenish.
Now to the banking system.
Is the banking system more like Rome – as my bank colleague would claim – or Vegas?
Personally, I think it’s more like Vegas.
No, not a gambling den full of nervous men throwing their money away … that’s investment banking … by the banking system, I mean its infrastructures, connections and processing.
These infrastructures weren’t built in Ancient History and do not preserve the core essence of banking. The essence of banking was founded in Venice, Amsterdam and London, and these historical remains can be seen to this day in the form of the merchant banking documents and buildings that scatter these cities. But the infrastructures were established using more modern technology which, like Vegas, began its irresistible path to automation in the 1950s.
Like Vegas, the bank infrastructure has its’ Hilton, Bellagio and Mandalay Bay. Unlike Vegas however, it seems to have far more Hiltons than it should.
This is because the banking system was built co-operatively by associations of processors, providers and operators, rather than by competitive hoteliers trying to land grab from each other.
Therefore, the question is more to do with whether new and aggressive operators can enter the banking system, bulldoze the old world down and rebuild a new efficient, lean and mean operation.
One built for modern civilisations rather than ancient mankind.
Hmmmm … the question would really come down to: when is it right to destroy the old to embrace the new?
This is the question Vegasites ask and bankers need to ask this question too.
And here’s my suggested list of a few things to answer in order to determine whether to rebuild or repaid:
Does the current system provide an ability for the industry to operate effectively?
Does the system process transactions at a cost that equivalent to comparable systems in other industries?
Are the new technologies that could run the operation bullet proof?
Would the new technologies offer a price, cost, speed or risk-avoidance advantage that customers would pay for or that the industry requires in order to be secure?
Would a rebuild deliver annual cost savings and return on investment that could justify a destruction within a reasonable timeframe?
… and so on.
These are all obviously questions that are sensible and asked regularly by the banks, industry operators and service providers who manage and run the infrastructures, processing and operations of this industry.