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Banks have bigger development shops than Microsoft

I attended a great conference in Copenhagen this week – Finans IT-Dagen.

Didn’t understand much of it, as the majority of presentations were delivered in the Danish language which is understandable being a Danish conference, but I did get the gist of the content from the slideware, much of which was in English.

A presentation that particularly intrigued me came from the CIO of Danske Bank, Peter Schleidt.

The reason it intrigued me is that, like the Icelandics, Peter’s bank is rapidly becoming a purely digital bank.

Here’s a few things his slides said:

  • All products and services are online;
  • Customers have digital id and digital signatures;
  • All correspondence is electronic;
  • Today Denmark is paperless: you can become a customer of the bank without signing anything physically, you just use digital signing; and
  • Norway is now going virtual: you can become a customer of the bank without having ever having to go to a branch, just use Digital-ID.

As a result, the banks metrics are changing rapidly.  Since 2009:

  • Teller transactions are down 32%
  • More than one in ten branches (11%) have closed (three in ten in Iceland and about to rise to six out of ten);
  • Calls to the contact centre have fallen by 14%;
  • eBanking users are up 27%;
  • 4% of all transactions are now on mobile telephones increasing to 11% of all online transactions are made by mobile; and
  • 320,000 downloads of Danske Bank’s smartphone apps so far (launched just under a year ago), generating 150,000 payments per month by mobile.

Then Peter presented a load of the bank’s stats in terms of IT and transaction processing as follows:

  • Danske handles 10 million transactions per day and 3.2 billion payment transactions per year;
  • 160 billion Danish Krona (circa $30 billion) in FX is traded per day;
  • 15 million accounts are registered with their online bank;
  • The IT budget is 4.1 billion Danish Krona (about $800m) per year; and
  • There are 2,200 developers in the bank.

This last point intrigued me as, back in 2007, HSBC presented some of their stats as follows:

  • HSBC process 100 million transactions and $1 trillion of funds daily;
  • HSBC has over 125 million customers around the world;
  • 25 million customers are online with HSBC's internet banking;
  • HSBC’s IT spend is around 7.5% of revenues and 16% of operational expenses, representing over $4 billion per year; and
  • They have more than 312,000 staff in 82 countries and 23,000 are technology staff with over half of these, 13,000, as developers. 

Danske Bank employs 21,000 people in 15 countries, of which 2,200 are developers.  That's over 10% of the workforce and, in HSBC's case, around 7% in development. 

This makes these banks software development powerhouses.  

By way of example,  Microsoft employed 1,000 developers to produce Windows 7, and a mid-size regional bank is employing more than double this number whilst a major global bank is employing over ten times this amount.

Just to put further context, Danske Bank had revenues of DKK 46.28 billion (US$9 billion) in 2010) and profits of DKK 3.661 billion ($700 million), whilst HSBC has revenues of $68.2 billion with $13.2 billion profits.

Peter then went on to compare his operations with some of the other leading banks, and pointed out an interesting delineation of technology approaches.

  • Danske’s approach, like Santander’s, is to have one systems platform everywhere.  No differences by country or operation – all use the same system;
  • HSBC’s is similar, but instead they build once and then deploy everywhere.  In other words, it’s not one common platform but replica systems globally with local control;
  • Nordea selectively standardise, so some systems are common and some are not; whilst
  • Société Générale act as a ‘managed federation’ of systems, with many local differences.

Obviously the tightly coupled single platform is easier to maintain and control, Peter proposes, than the other approaches.

Yes, but what he didn’t discuss is why these banks need these megaoperations in the first place when so many standardised software, including core systems, can be bought off the shelf these days.

His only comment here is that banking is a digital business and so Danske Bank must develop the best in order to compete with other banks.  This means the best banking platform for customers’ products, processes, services …

Not sure I agree, especially as so many banks are now taking the route of movements towards industry solutions rather than in-house.


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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  • Mr. Schleidt brings up a good point–banks have to implement innovative platforms to stay relevant in the industry. To address your comment, megaoperations hold a sizeable advantage over off-the-shelf, generic solutions–they are built to specifications in line with the strategic operations of each individual bank. Externally developed solutions are often customized to fit the needs of the bank, so while they are ‘industry solutions’, they are built to perform the business functions vital to the goals of each individual company. With off-the-shelf solutions, however, every institution, regardless of end goal or desired strategy, will receive the same platform.
    One advantage that customized software as a service (SaaS) solutions hold over in-house solutions is infrastructure. When the platform is externally developed, the bank can dedicate more resources to their actual banking functions, while their backend processing is left to a company with expertise in the area.

  • Fiona Brownsell

    Interesting debate indeed. When RBS, under the leadership of Fred Goodwin began their acquisition trail they ran so fast they were unable to merge all the systems and data, so when the crash hit they were unable to evaluate precisely their exposure across 20 or so different platforms. (Masters of Nothing, Matthew Hancock, Nadhim Zahawi 2011)This is obviously an unacceptable business and regulatory outcome and would seem to point to the Danske model as the preferred strategy.
    However, if we look at the business deliverables of a banking platform we find that there is a need for country by country divergence: statutory and regulatory reporting; tax laws; fraud exposure and management; customer due diligence decisioning; electronic cash, merchant and payments systems integration; and the more obvious customer/service agent language and currency differences, not to mention operating in different time-zones (exactly when is end of day?)
    With in-house developers the strategy of one system, grown organically, as new products, markets and countries are entered, often results in hard coding rather than parameter driven platforms. These quickly become ‘legacy systems’. Every modification the business needs becomes expensive and time-consuming to change as it entails finding each line of code that needs to be changed, then changing it, then testing the change. In their defence, I have to say most IT departments don’t like this outcome either but unless they started out knowing what was likely to need changed as the business evolved, they can’t possibly have made all the right things driven by parameters. The IT folks are often blamed for this outcome which is really the result of many small changes being evaluated independently with pressure to ‘just do it’ rather than strategically grouped changes which could be future proofed.
    Then of course, what we would do today with a blank sheet of paper and already approved investment is easier than justifying investing in migrating to new platforms. Just look at Tesco’s gaffe when people couldn’t see their accounts online for a whole week. Or Alliance and Leicester customers online banking being gradually re-branded and changed as Santander standardises little by little. Not the sort of exposure to customer dissatisfaction that banks need right now.
    I would suggest that the Nordea approach, coupled with careful selection of industry engines for utility/standard functionality and differentiated at the various unavoidable interfaces by either in-house folk or specialist IT consultancies could tick most business boxes.
    A word of warning though, many of the industry engines available today are not as advanced as they claim. Most are based on thirty year old technologies with ‘middleware’ upgrades to make them look as if they can perform in todays 24×7 world. A bit of scratching under the surface reveals that they require daily batch runs (i.e. are not truly realtime 24 hours a day), require hard coding for new products with testing taking up to 3 months and databases that can’t hold all the data needed for todays customer centric online and mobile banking.

  • You can’t really compare the figures, because Microsoft developers are building something new, whereas nearly all bank IT spend goes on patching up legacy systems – a tiny percentage goes on new stuff.