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Banks don’t die of technology, but succeed because of it

I was thinking about the day the old bank died, and thought the comment could be taken in a wider context: the day the old banks died.

A lot of people want old banks to die, but they won’t. They’re the walking dead, in some cases, but there are also phoenix banks in other cases.

But the case of Banca Monte dei Paschi di Siena is a classic failing of bank balance sheet management. Going back to the FT report:

MPS was nationalised in 2017 after it was revealed the bank hid hundreds of millions of euros in losses between 2008 and 2012 using complex derivatives contracts. Thirteen former bankers from MPS and other lenders have been jailed over the case, which shook Italy’s establishment and fomented the rise of populism in the country.

This made my mind wander down other avenues. Northern Rock, HBOS, Washington Mutual, Bear Stearns, Lehman Brothers, Barings Bank and many other banks have failed in the last twenty years. But I cannot think of a single bank that has failed because of technology.

I can think of a few that have succeeded because of technology, but I cannot think of a single one that has failed.

So, when the techie guys all throw rocks at the walls of big banks saying you’re slow and stupid and you don’t get it; I would sit behind the walls of the big banks and look back and say you’re dumb and naïve and you don’t get it.

OK, we could get into a major row here, but both sides don’t get it.

The techie guys are right, but it won’t lead to the downfall of the bank or banking, or not anytime soon; the banking guys are also right, but it doesn’t mean they can ignore the impact of technology.

In fact, my favourite example of a bank that gets it is JPMorgan Chase, as those who have read Doing Digital will know.

Since Bank One merged with JPMorgan Chase in 2004, when Jamie Dimon became CEO, the bank has trail-blazed the right way to think about tech. Jamie made that clear when he broke a record-breaking outsourcing contract to insource again. Why? Because he believe technology is the thing that will make the difference between banks winning and losing, and therefore you have to control your destination.

That mentality has continued throughout his tenure, and continues today. This was highlighted by Simon Taylor (do I keep quoting him these days? … maybe it’s because he’s good), who picked up on JPMorgan’s commitment to renew its core infrastructure using Thought Machine.

Chase is the first giant global bank that is going big on Fintech and digital. Not digital transformation, but digital. They’re investing or acquiring a new start-up almost every other week; they have some significant long-term bets like Onyx, and their CEO Jamie Dimon is “scared shitless” of Fintech companies. That’s a good thing ….

Chase has selected Thought Machine to replace its consumer checking and lending platforms in the US. This comes after a selection process and extensive testing of the Thought Machine platform under high volumes and load. JPMC had five criteria to evaluate new platforms against:

  • Shipping product faster
  • Run many products on a single platform
  • Availability, resilience, and scale to support 57m customers
  • Run all products and transactions in real-time
  • APIs that enable embedded experiences

Thought Machine as a modern, cloud-native core ticked all of the boxes. This is a huge validation for cloud-native core banking in a market where many banks have been wary of ditching their mainframes.

I’m glad Simon picked up on this, as it saves me writing it, but banks will never die due to bad technology management. They will die due to bad balance sheet management. But banks will succeed due to good technology management.

JPMorgan has proven this and, just as a proof-point, look at their investment banking record. Before the financial crisis, JPMorgan were pushing on the edges of being a top ten investment bank. Guess where they are today (spoiler: #1) ? Any idea why?

About 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...

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