I had a fascinating chat about bank issues with their legacy
systems yesterday, and concluded that the legacy issues are the bank’s fault.
There are two issues: one is related to banks believing that
they are stuck with overheads that they want to eradicate, but customers won’t
let them go; the other is banks being stuck with legacies due to previous
management’s lack of bravado.
The first relates to things like cheques. Banks want to get rid of cheques and announced
that they would phase these payment services out in the near future … oh no, said the customer. Look at
small businesses and old people. They need these payment services.
This dilemma is a simple one: as you bring in new capabilities,
you need to delete the old ones.
If you introduce mobile internet banking and don’t want customers
to use call centres or branches, then charge them for the pleasure of doing so.
A fee per transaction in branch or call centre would soon
stop customers using those channels.
But banks then scream: we
can’t do that, we would be ripped to meat by the press and regulators.
Sure, sure, sure.
So turn it around and give customers a discount if they use
the channels you want, rather than punishing them for using the ones you do
But that’s what led to
free banking, screams the banker fraternity, and we don’t want a repeat of that disaster.
In that case, time limit the offer or, even better, make it
a behaviour incentive approach.
FOR THE FIRST YEAR OF MOBILE BANKING, IF YOU NEVER VISIT THE BRANCH OR
CALL OUR CALL CENTRE, WE WILL GIVE YOU £100 CASHBACK.
Or something like that … amazing how customer’s behaviours
change when you reward the right behaviours.
Then, over time, you are naturally punishing the wrong ones.
Just look at the transit industry for a lead here. When contactless cards were introduced by
transit authorities, they offered journeys for half price. Gradually, the pricing of those contactless
journeys becomes the same as the old ticket based journey and, gradually, the
ticket based journey becomes double the cost of the contactless journey.
Simple mathematics and it works.
For example, the London Oyster card was launched in 2003 and
now over seven million Oyster cards are regularly used in London. Each week, 57 million journeys are made using
Oyster and, in 2011, more than three billion journeys were made using Oyster
representing 80% of all bus and underground journeys.
That’s because it’s near half price per bus journey and a 50%
or more discount for the underground (£4:50 cash versus £2:10 on the oyster
card). Meanwhile, Transport for London,
the operator, makes about £53 million a year in unused monies left on the cards.
Banks could learn a thing or two from this sort of incentivised
price and reward model.
Then we get to the other issue: the legacy.
Banks whinge about the cost of keeping up with the new when
so much cost goes into maintaining the old. Isn’t this a reflection of the bank’s
historic management being too spineless to tackle the issue?
No-one wants to eradicate the old if it means risk, but not
taking the risk is creating a bigger issue downstream. Like a UXB (UneXploded
Bomb) inside the bank, the ticking timebomb ticks away until one day it
A critical systems failure happens, because no-one bothered
to overhaul the system.
The legacy is no longer a good excuse for a bank. Banks should not be hamstrung by heritage,
but need to be fit for the future and they can only achieve future fitness by continually
refreshing and renewing.
It’s a bit like lipstick on a pig. How much lipstick can you apply before the
pig needs radical plastic surgery?
So, for a bank with
any systems constraints, they really should be looking to rip those systems out
and replace them, rather than living with the UXB and applying a little more
lipstick to it in order to make it look better.
IMHO anyway …