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Real-time means now, and don’t you forget it

I just had a dialogue that was disquieting.  I can’t say with whom, but the dialogue was
about the impact of real-time on the world of regulation.

This person said to me that their regulator ran a
COBOL-based system that could not handle real-time because it was batch based.

Really, I
exclaimed.  It’s the 21st century; surely it’s time for the regulator to
run in real-time?

Apparently maybe not.

Why would a regulator
want to run in real-time,
they asked?

Plenty of reasons,
I replied, with the strongest being the
real-time analytics capabilities that such systems can provide.

What you mean, my companion

I was becoming exasperated as this is not the sort of dialogue
I anticipated.

In our modern world, everything is moving to the moment of

Not the moment of now – 1 or, as we like to call it, D+ or
T+ a few days.

Everything is in the moment of now.

Now is the real-time.

Real time does not mean a second ago or a second from now.

Real time is real time.

It’s now.

It is as you read this.

It just went.

So if I take anything from transacting online to making a call
on the mobile to sharing a glass of wine over dinner, all of these things take
place in real-time and are then burnt into my memory.

That is what we need in our systems, processes and capabilities.

The ability to track the movements of money in real-time,
and analyse and understand what those real-time monetary movements mean in

From a regulatory point of view, this means looking for
real-time compliance and any real-time misdemeanours.

If every transaction transacted by any bank were available
to the regulator on a real-time basis, could they track real-time insider
trading and real-time money laundering? 
Of course not.  But they would be
far better equipped to do this than running such analytics in overnight batch
updates to a COBOL system.

Take another different, but related conversation.

I was talking with a transaction banker – a payments person
if you prefer – about the movement towards real-time payments as offered here
by VocaLink and in Poland by KIR.  There’s
a new service from the BGC in Sweden that offers real-time payment and
real-time settlement, and there are others on their way.

As all of these systems move towards real-time, does it not
make sense to think that a bank will move to collocate their processing to the
real-time centres operated by their clearing houses?

Not really, my
colleague said.

Duh? I replied, in
my normal articulate manner.

Not really, they
repeated and elaborated by saying, colo
is for the high frequency trading world where a nanosecond can make the
difference between getting an order filled or missing the deal.  We don’t live in that world, so colo makes no
sense to me.

What about real-time
, I felt like screaming but didn’t.

Surely, if we are moving to a real-time world of banking
where millions or even billions of dollars of funds can be transacted, cleared
and settled in real-time, we will then also move to a real-time world where
everything will be connected, integrated and colocated.

This makes sense as everything from the regulatory viewpoint
to the banks own fraud analytics engines will be working in real-time and in
harmony together, to track, trade, transact, clear and settle everything in
real-time from an itunes download of the latest song by Taylor Swift (yeuch!)
to the billion dollars of trade in Apple stocks on a daily basis.

This is because it makes absolutely no difference today,
from a technology point of view, to support and process a fifty-cent trade to a
fifty-billion dollar trade.

Sure the amounts and exposures are different, and hence the security
alerts and blocks will be greater for the latter, but the actual processing and
process is the same.

Therefore, if you don’t think that a real-time regulatory
analysis or real-time fraud analysis will appear very soon on the horizon to go
with your real-time clearing and real-time settlement capabilities, then you’re
missing a trick.

Get with it folks.


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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  • Cobol is not a bar to on-line transactional systems. We were doing this back in 1983 with considerably less CPU horse power than today. However I do take your point that monitoring system should be close to Real Time processing.

  • Thomas O.

    Well, nobody invests in realtime systems because it is cool, because it’s the 21st century, or because someone believes it is best practice.
    Trading is real-time (and collocated at tremendous cost) because you want to be the first to react. Risk management is going real-time, because you want to see the impact on exposure before you commit to a trade.
    Settlement happens after the fact. Sure, getting down the settlement cycle reduces the exposure to settlement risk, but that’s not what is driving your reg capital requirements through the roof. If you want build fraud detection into the process (and everybody does so) – feel free – it’s just one step in the process, and as it does not need to be real-time, you have time to sort out any potential issues you might detect.
    Today, regulators do an investigation based on evidence which is collected in a tedious process. So why waste the tax payer’s money?
    Would the regulator want to do real-time market surveillance of the OTC markets? Maybe some time, but that has major impact for the whole market infrastructure, not just for one COBOL platform.
    So yes, real-time is coming – but you still have to make the case for it in each single instance.

  • Fritz Thomas Klein

    Like so often we jump far too fast to an ‘either – or’ debate. Either real-time or over night. And like so often the full answer is missed. It is both! We need real-time and we need over night, everything at the time appropriate from a busines, regulatory and due diligence perspective.

  • And Real-Time requires an instantaneous and fully interoperable underlying multi-purpose Trust Framework which can provide the necessary Privacy, Authenticity, Integrity and Non-repudiability of each transaction. Borderless (like the internet) not nationstate by nationstate…

  • This is an on-going debate with many antiquated IT departments who will argue on many topics that near real time is ‘good enough’.
    When the next question is asked then their heads go back in the sand:
    So when I get my cash out of the ATM and the ‘Near real time’ checks don’t highlight a problem – then how do they get the cash back.? The same applies to goods at a POS counter.
    Fraud checks are often done in near real time – too late the deal has been done.
    Please can we get ‘Near Real Time’ out of the vocabulary – before it’s too late !!!!

  • Real Time computing has been around for years in the shape of analogue computers and industrial process control systems, but they rarely include transactional features such as roll-back and complete audit trail. Many of the MSDOS/Windows and UNIX type systems are arguably not Real Time operating systems, but are effectively timesharing.
    Real Time systems are not required for compliance and regulatory controls, however such control systems should be very fast systems, perhaps termed “Near Real Time”. They are similar but not the same.

  • Nick S

    I would like someone to explain what “near real-time is, one day. I know what real-time is: synchronous end to end transactions. Usually these are fast, but this is not the key criterion…which is that everything necessary to that transaction – including calls out to decision support systems such as fraud protection – takes place at the transactional level. At the end of the transaction its success or failure is known, and all parties can move on to the next thing on their agenda. With a payment, perhaps the simplest transaction, this means the money is with the beneficiary and available for use. Not “in transit” or “guaranteed” to be paid, but available for use. Simple. If you didn’t have technichal restrictions (like you did in the sixties)why would you design it any other way?