Banking Fintech

Core systems should have built-in obsolescence

Core systems should have built-in obsolescence. Photo: kwanchai,
Written by Chris Skinner

Today’s world of financial services is fast, nimble, agile and ready to do business today. At least, that’s what it’s like for the startups. Story by Chris Skinner.

Talking about moving from proprietary to open, from controlled to marketplace and from internal to external focus, another key change is the very nature of technology itself. It’s quite clear that a startup today could launch with just a few thousand dollars, Amazon Web Services and a bright idea. There’s no need to build complex infrastructure and spend months with hundreds of coders creating something. This is why there are so many new startup services for banking and payments, and it’s not just the big names you know.

Having spent last week with Solaris Bank in Germany, it’s clear that with a few people, bright ideas and enthusiasm, anyone can create a new bank pretty quickly – in Europe, anyway. I’ve met neobanks and newly licensed banks across Europe now, and the consistent factor is that they’re using open marketplaces, APIs, apps and cloud to kickstart a new injection of change into banking, and pretty fast. Some are getting licences in under a year, to illustrate that point.

This is so different from the banking markets that I’ve worked in all my life. When I started out in banking technology, we would be trying hard to justify a new system acquisition. It was a tortuous process of building a business case, reviewing the return on investment and cost-benefit analysis, talking and presenting and presenting and talking, with huge resistance from anyone to ever say yes. Saying yes was (and still is for many) a big deal. Saying yes was committing the bank to a five-, 10- or even 20-year contract; it was committing the bank to hundreds of millions or even billions of dollars of investment, and it was determining the banks’ strategic direction for the long-term. That’s a big deal.

Speed and agility at low-cost

The issue is that this mentality of the “big deal” still pervades for many senior bank decision-makers, yet today it’s no big deal. If a startup can get a full suite of banking software up and running like Ant Financial, Solaris, Thought Machine, PrivatBank and more, then you know the answer today is all about speed and agility at low-cost. There’s no big deal here. In fact, as alluded to in an earlier blog, if you can build a developer-driven bank where a micro-services architecture allows very small teams to change little parts of the architecture continually, then you have a bank built for today – a bank that can provide updates for its apps and APIs every day (or even intraday), rather than every year or even biannually.

This brings me back to my relentless cry for replacing core systems in banks, as this is the only reason why any technology change today would be a big deal. Today, a bank that’s stuck with a complex legacy spaghetti mess would find it hard to be agile, developer-driven, open-sourced and competitive in the fintech marketplaces because they can’t make a decision to do anything. Any decision would be committing the bank to a multi-year, multi-billion-dollar change and that’s just too hard to do. So they avoid the decision. After all, the CEO is retiring in a couple of years, is rewarded based on shareholder return, and can get away with soft shoe shuffling in the markets with a nice app and front-end. No one will notice if the back-end stinks like crazy.

That used to be OK, but it doesn’t wash today. After all, the innovative banks, fintech startups and agile new players are all dealing with a different world. Their world is one of fast cycle change. They can do the quickstep, foxtrot, tango and samba all at the same time. This is all down to the knowledge that nothing is difficult to do, nothing costs much to do, short-term technical obsolescence is built into their developments, and their journey is a continuum of technological change.

Compare that with their more traditional contemporaries. The banks stuck with legacy are waltzing through the markets. Their movement is slow and laboured, and every change of step along the way causes a coughing and wheezing moan. They know that everything is difficult and everything costs; they cannot accept any obsolescence as it would hit the balance sheet, the shareholder returns and the C-suite’s bonuses, and their journey is how to add rooms onto the castle, rather than rebuild the castle.

I know I hark on about this a lot, but in a world where technology is disposable, developments are fast-cycle and technology based competition is viscous in an open-sourced marketplace, I would be seriously worried to be leading a bank that can’t even enter that world.

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– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: kwanchai,

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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