The Bankwatch

Tracking the consumer evolution of financial services

Banks are doomed when it comes to technology

What to make of RBS.  Everyone in banking knows of the problem with old systems that rely on old guys with proprietorial knowledge.   And I say that with the utmost respect for those ‘old guys’ – I have been there and banks cannot survive otherwise. 

So when banks turn over their network and application system management to a third party, Chennai in India in this case, it raises all kinds of questions.  I pity poor Chennai and here is why.

My understanding is that most, if not all, of the batch team were let go and replaced with people from India and I do remember them complaining that they were having to pass 10-20+ years worth of mainframe knowledge on to people who’d never heard of a mainframe outside of a museum…

Its easy to leap to conclusions here, but I have one central one that I have witnessed first hand.  The fault lies with bank executive at the highest level.  It’s a paradigm to speak of bank executives fiddling while Rome burns (working for bonuses and options versus doing the right thing).  But I have been in those meetings and listened to the most senior speak of inability to replace old systems because they are, real time, mission critical, etc etc so they cannot take the risk of moving the customer activity into a new system.  Translation = my bonus is at stake so I will not take that risk.

I have been working in a startup for 5+ years now, and observing how new technologies work.  Rule one is nothing new to engineers.  Break the problem down into manageable chunks.  Establish a path of progressive implementation and always retain a fallback.

Bank systems are a peculiar construct of very old technology with customised COBOL back ends running alongside (relatively) modern web technologies.

So pity poor CA Technologies.  I have sympathy for them in this.  RBS are lashing out today and threatening to sue.  Some poor schmuck in Chennai implemented a code change as requested.  What was clearly missing was

a) adequate testing in advance

b) a rollback strategy

The matter of advance testing is key here.  Some clarification is worthwhile here for those bankers not directly involved in technology.  In my current startup our technology folks have several environments and two worthy of mention in addition to production. 

Environment 1 is a complete replica of production with test cases.  Environment 2 can replicate production without impacting real production.  These environments mean testing can occur such that we can be quite confident new changes will work when implemented in real production.  Nothing is perfect of course, but I have yet to see a full rollback.

Bank systems are an incredible mix of multiple systems with multiple owners and based on technologies from the ‘60’s to modern age.  There is no proper testing environment that can allow for all possible contingencies when changes occur.

Relevance to Bankwatch:

I believe banks are doomed when it comes to technology.  I could go deeper, but for all the reasons above and more, I fail to see how they can advance.  The QFinance piece linked here notes that the RBS GL is a 1967 technology.  This will not be any surprise to any banker reading this.  It is worth noting that to understand a 1967 system you must have been born in 1942 or earlier (yes that is a date during WW2)

It is not uncommon for banks to have senior managers in the technology group earning SVP+ salaries simply due to their proprietary knowledge of systems that predate all current technology education.  Any Bank CTO that wants to challenge, please let us know here. 

Written by Colin Henderson

June 26, 2012 at 23:04

Posted in Uncategorized

3 Responses

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  1. I would humbly submit that the conversations re: core systems are a little different now than they were five years ago. 🙂

    Dan Dickinson

    June 27, 2012 at 08:59

    • Pls feel free to expand. Does this mean that RBS is unique in use of a customised 1967 system (just one example).

      I am certain things have evolved in the last 5 years, however my recent experience with a Tier 1 bank and their commercial offerring suggests things have not changed so radically.

      However I do hope things are shifting.

      Colin Henderson

      June 27, 2012 at 10:34

    • Sorry, I meant specifically about the bank at which you have witnessed these conversations firsthand. Don’t get me wrong, nobody wants to replace core systems, but some banks are finding ways to modernize them and reduce risk rather than just outsource the whole lot and hope for the best as the quote above suggests RBS did. Though I’m sure that quote is something of an exaggeration and/or ass-covering.

      Happy to elaborate over a pint sometime. It’s been too long!

      Dan Dickinson

      June 27, 2012 at 21:01


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