The switch from analog to digital banking is not just about new tech – part 1
Art Gillis, a seasoned banking technology consultant (working in the computer industry since 1958 – and listed as a top 25 tech consultant by the American Banker) and author, pulls no punches in this opinion piece. Digital technology evangelists, read it at your peril.
The past 50 years
I have known only three bank CEOs who really had great insights about the risks, benefits, costs, HR talents, realistic expectations, vendor selection, and the usual, but scary, realities of technology. These are John Reed (Citibank), Jamie Dimon (while at Bank One) and Dennis Kuester (M&I Bank). These days, it is unreasonable to expect any bank CEO or board member to be an expert in technology. But that’s OK.
It’s the analog of banking that needs fixing before the digital side can demonstrate its power. And bank CEOs are absolutely critical in the task of improving the analog side. A strong and highly qualified CIO will take care of the digital side. Connecting the two sides requires calm resolution, patience, honesty, a sensible strategy, the right amount of precious capital, and consensus (the ownership kind, not rah-rah). Single-czar control is a recipe for disaster.
“Analog” in the world of generic technology is the coupling of front-end instrumentation to a computer to better manage data. In this context, front-end means pure banking functions, customer interactions and regulatory compliance. Instrumentation, in the traditional sense, might be a flight simulator, or an MRI unit, or space missions, or airborne weaponry that can distinguish a school from a munitions plant. Engineers love analog to digital converters because numbers are computable, shapes are not.
If this isn’t clear yet, it’s because I earned only a degree in accounting, not engineering. The problem is with the front-end of banking, not the “backroom”.
After 2008, it was clear that respect for bankers, not all but many, sank greatly. Tech people escaped the embarrassment, and for good reason. In the past, however, we were always blamed for things that were not right about automation.
In 1992, I even wrote a book about the phenomenon, “Sorry, Our Computers Are Down”. Great title, but the computer wasn’t the only villain. Included were, software, telecommunications, too-quick-to-sell, poor design, untrained people, egos, unrealistic promises, budget over-runs, lawsuits, and even love affairs between software developers and internal auditors, the perfect collusion team.
Today, banking technology is in pretty good shape. I can say this without bias because I never invented any of it. But I was there when inventions in software, hardware and service bureaus started in the mid-1960s. Progress did not occur overnight. It took five decades, and it is now in refinement mode. The refinement worked and will continue forever. My assessment of “pretty good” is still a bit skeptical. It’ll never be perfect. Vendor sales and marketing people would have you believe their technology is fantastic or in today’s parlance, “amazing”.
We haven’t seen a brand new banking technology in the past 15 years, and my answer is that all the bases have been covered. The last one was the now ubiquitous mobile banking.
Most people cannot believe the advancement of new technologies has stopped, so I created a list of each innovative product and the decade in which it was introduced (see the list below). Decide for yourself if it tells the truth.
It lists 22 innovations. So that you’ll understand the true meaning of innovation from an analyst’s perspective, I’ll use two examples:
1) A new Demand Deposit Accounting (DDA) system never made the list. It existed when banks were using punched card equipment to process customer transactions.
2) The ATM was one of the early items in the exhibit. Before the ATM, a customer could never withdraw money after 3pm unless he/she was a robber.
Five decades of true innovation (plus a period of refinement)
1. mini computer
2. ATMs and EFT
3. CIF first attempt to aggregate customer relationships
5. data communications
7. in-house systems
8. outsourcing gets better
9. integration begins as an idea
10. platform automation
12. cheque imaging
13. mortgage explosion (the good kind)
14. relational database and data mining
15. cheque 21 (digital images can travel)
16. electronic payments
17. cash management
18. using the web as an architecture (SOA)
19. mobile banking
21. fraud control
22. risk management
2010 – 2014
A makeover period
Definition of a straight line: shortest distance between two points.
Definition of bank tech innovations: a snake’s path in the sand.
This is Part 1 of a two-part article. In Part 2, Art explains why he disagrees with the recent Gartner research on the subject of digital overhaul. Excellent food for thought. Click here to read Part 2.