A lot of folks are asking me whether I’m really saying that banks need to start all over again? Is that really feasible, Chris? How can you recommend that we tear down the house and rebuild it? Well, there’s a lot of reasons I can say this, and believe it.
Firstly, we started building systems in the 1960s based on automating transactions in the back office on a mainframe. The transactions were the debit and credit accounting ledgers, and the information derived from branch-based operations. In the 1970s, we implemented 3,270 green screens in branches to feed those mainframes with data for the transaction ledgers. This was a cost-cutting, administrative and efficiency play, and it worked. In the 1980s, we introduced ATMs to the network. The ATM was designed to get rid of tellers (it didn’t, by the way) …
… and have become the main electronic outreach point for most banks in a physical sense.
In the 1990s, the next major electronic movement was to remote customer support through the telephone call center. Already, by this time, banks had multiple legacy systems created through M&A, expansion of offers and disparate IT strategies. Most banks had multiple head office systems on multiple providers platforms, because they built their deposit account administration on IBM, for example, but then introduced insurance, mortgages, cards and other product lines from other specialists, from Unisys to Fujitsu to Amdahl. This is why most call center customer service representatives were already struggling by 1999, having to use multiple windows on their desktop screens to answer a simple customer call, as they had to access multiple systems across multiple platforms to get a comprehensive customer view.
The result was that the central head-office-based focus was securely cemented in play by 2000, thanks to the previous quarter-century developments of systems, and much of this focus was on transaction processing for internal branch and call center support. Then things changed. Things changed fundamentally. The focus of support moved from internal to external.
It was at this point that we started talking about multichannel support, as we had to make external what was previously only visible internally. We had to give customers online banking, so we had to rethink the internal machine. Most banks didn’t. They just took the internal machine and stuck a front-end internet bank access to it through a username and password. That’s why most banks’ internet banking looks just like a bank statement, because that’s just what it is: an online access to the bank statement. We got away with offering an online access to a bank statement for a decade, but then the smartphone appeared with apps and real-time, and the emperor’s clothes became visible. Most banks tried to move their head-office-focused internal systems from big screens onto small screens, and it just didn’t work.
- It didn’t work because it’s not real-time – it’s batch.
- It didn’t work because it’s focused on internal cost-cutting, not customer experience.
- It didn’t work because it supported staffers, not users.
- It didn’t work for so many reasons, that almost every bank started looking at what to do and the answer was: buy something so it looks better.
So, the banks went out and bought Meniga, partnered with Moven, invested in IND, procured Yodlee and so on and so forth. That is all that investment in the customer experience in the front office that was highlighted in my blog last week. The trouble is the back end is still that half-a-century-year-old layer of mess that needs sorting out. In fact, banks are cemented in legacy mess, which is why they talk about channels. We only talk about channels because each was a layer on our entry point, and our entry point was that transaction systems for debit and credit recording in the head office mainframe dating back to the 1960s.
Branch was layered on the mainframe, ATM another layer, call center the next one, internet banking the last one, and mobile the latest. Each layer we call a channel, and now we talk about omni-channel integration. What complete tripe. There’s no such thing as ‘channel’, as I’ve said so often. The reason there’s no such thing as channel is that a channel is just a layer on a legacy. It’s legacy upon legacy. So when I hear banks talking about omni-channel or digital channel, I know that they’re just adding legacy to legacy, and it will not work because the legacy is based on a physical infrastructure view or, as I present this, a structure built in the last century for the physical distribution of paper in a localized network. We now need to rebuild this for the digital distribution of data in a globalized network, and the problem is that you cannot rebuild this from the front-end. You have to start rebuilding this from the core. In other words, we have to look at that half-century-old structure we’ve built for head office transaction recording and rethink it for 21st century structure of augmented, non-stop, real-time access. We have to do this for the user and their user experience, but also to ensure we can monitor in real-time. Real-time monitoring will give us knowledge of opportunities (cross-sell, increase share of wallet, loyalty offers, and so on) and threats (cyber attack, unusual activity, accessibility issues, and so on).
This is why I keep blogging about digital core, because I truly believe that no bank can evolve their legacy systems to support a 24/7, real-time world. Those systems just weren’t built that way. That’s why, when I hear the use of the word channel, I feel revulsion, because it immediately says that you’re thinking in an analogue, 20th century view. You’re in the mindset of adding whatever it is you’re adding as an extra layer on your legacy. It will never work and is my first alarm for the failure of any digital project in a bank.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here. Image: Freepik