For some time, I’ve banged on about banks must redesign for a digital core. It’s no longer a world that can live in a batch overnight update, when real-time everything is here.
This has been shown again and again by outages, and all of the incumbent banks are struggling to move from old world to new. In particular, this world is illustrated by the channel debate. As I keep saying, the use of the word channel is a last century hangover, that describes ‘adding to the branch-based core’.
Channel is from the old world, where we built a bank for the physical distribution of paper in a localised network. Now, we are transforming to the digital distribution of data in a globalised world, we have to redesign that core. Channels are replaced by access points, and the totality underlying these access points is a single, consistent, real-time digital core.
That is the huge challenge for banks: how to move from old core to new core, and how to move from a physical infrastructure to one that is digitalised.
Now I see that challenge every day in my dialogue with banks. Banks such as RBS, who saw their glitch create immense reputational damage; and banks like CBA, who have rearchitected and transformed the core to be digital, albeit with a few challenges along the way.
Now all of us are aware of these issues but, what we might not have expected, is that new entrants would face the same challenges.
New entrants such as Simple, a firm that is now a fully-fledged bank since the takeover by BBVA.
Simple was given a promise to be left alone when BBVA took over, and that may be true but it may also demand some focus after a few issues arose over the last month.
I could discuss the issues in depth, but the summary headline is that Simple cannot run it’s Safe to Spend feature effectively, when the banks that they are aggregating cannot deliver a real-time balance.
American Banker reports:
Technical Glitches at Simple Show Digital Banks' Weakness by PENNY CROSMAN
Technical problems at Simple show the tricky position of the digital-only neobanks: They depend on systems (sometimes antiquated ones) run by others, yet they're the faceless names bearing responsibility for problems.
Customers of Simple, a unit of BBVA, have complained in recent weeks about delays and failures in scheduled payments and sporadic problems with the Simple app's "Safe to Spend" feature. Although Simple and BBVA executives did not respond to requests for interviews, a section of Simple's website visible to customers acknowledges several "known bugs."
Simple's difficulties illustrate the challenges all financial services companies encounter when they attempt to provide real-time payment and account information while relying on legacy systems and payment networks that run at a far slower pace.
"What Simple is realizing is that even though they started as a 'nonbank,' they face the same challenges as a bank in terms of processing and customer service," said Jacob Jegher, research director at Celent.
Most financial services companies experience outages and glitches on their websites and mobile apps from time to time. Most famously, in September 2012, almost a dozen banks suffered hours of downtime on their sites due to distributed denial of service attacks. Last February, Bank of America and Citi had significant outages in their digital channels.
But digital banking outages are also a symptom of a broader problem in the financial services industry: legacy systems and antiquated payment networks that fail to deliver the kinds of real-time updates mobile app users expect.
"Online and mobile account management are a window onto the dirty laundry of the bank," said Chris Musto, a managing director at the research and consulting firm Novantas. "Banks and brokerages used to be able to manage customers through outages, glitches and other issues simply by not revealing it all to them."
When online and mobile banking services promise real-time updates on balances and payments, for instance, challenges in the bank's core processing system and other parts of the plumbing can suddenly be exposed.
"Consumers could become aware of it before the bank is aware of it," Musto said. "This is often chalked up to problems with internet and mobile banking not being ready for prime time when in fact they're doing their job and showing you what the bank knew about you."
The "known bugs" listed on Simple's website include one that affects the way payments are displayed.
"Payments may disappear from the 'Scheduled Activities' section of the app during processing," reads the customer disclosure. "This display issue does not affect their processing, and the payments will reappear in the 'Activities' list when they are fully processed, which may be several hours later. Also, some Payments may have been dissociated with their respective Goals and deducted from your Safe-to-Spend twice. To correct your Safe-to-Spend, delete and re-schedule the payment or transfer the funds from the goal back to your Safe-to-Spend."
And at times the sum displayed is greater than the available balance, the Simple website acknowledges. "This occurs when a settled charge is not deducted from the displayed balance." Another problem the website reveals is that check holds may remain visible after a check has cleared.
A Simple customer whose payment did not go through after several email exchanges with customer services was eventually advised by a rep to find another way to make the payment.
Simple has fallen victim to technical difficulties before. In early August, CEO Josh Reich issued an apology on Simple's blog in which he said a small number of customers had experienced serious issues with their Simple accounts. Simple had recently replaced its partner processor with a new transaction processing system Simple spent 18 months building in-house, Reich said, to improve Simple's ability to innovate by giving it more control over its technology and to improve system stability. The problems customers experienced, he said, were mostly due to scheduled downtime during the switchover to the new system.
Musto gives neobanks like Moven and Simple credit for creating value-added products that take advantage of real-time customer information.
"The challenge is that it raises the stakes for having that information correct in real time," he said. "Sometimes the reason it's not correct in real time is in your control, but sometimes it could be issues with a payment network or the inadequacy of the underlying information."
And any company that relies on a vendor for its processing is at the mercy of that third party for any changes or fixes - and that vendor might have 3,000 other clients with very different priorities.
"No one is immune to technical challenges or difficulties. The question is, how quickly can they be fixed" Jegher said. "If you're relying on third party providers, your hands are tied. That's not a fun place to be whether you're a Simple or a large bank."
Such situations can bring about some soul-searching.
"You're faced with, what do you build in house, what do you go to vendors for, how do you work with payment networks and other systems that not moving as quickly in self-service as fast as you would like them to?" Musto said.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.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...