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Is Old Tech Putting Banks Under Threat Of Extinction? (bbc.co.uk)
Matthew Wall from the BBC has written a fascinating piece detailing our reliance on banks in today's connected and ever-changing world of technology. The premise: "You put your card in the cash machine but nothing comes out. The bank's IT systems have crashed again. But you need money fast, so what do you do? It's an unsettling scenario that is likely to become more common over the next few years as the big banks try to upgrade their IT systems, experts are warning."
Bruce66423 writes: In the old days everything was batch programs and reconciled once a day. Now, online access and the expectation that money will be immediately available makes the old systems obsolete, but impossible to replace because there are layers upon layers of complexity...
Bruce66423 writes: In the old days everything was batch programs and reconciled once a day. Now, online access and the expectation that money will be immediately available makes the old systems obsolete, but impossible to replace because there are layers upon layers of complexity...
is Killing banks faster.
unlike what is implied here, main business of banks is extending credit (iow loaning money)at interest. money obtained through variety of means, mainly deposits.
and loaning money can be only partially subjected to automation, and usually require lot of human interactions and long term relationships, and lots of specific customization. that is why small banks and banks branches still continue to exist .
that is also why technology wont make banks obsolete anytime soon. if bank lose deposit taking due to technology ( a very huge if), they will get the money for loans from those who replaced they in that business.
Really? You Sure? I've a friend who has worked two UK banks and would definitely agree.
Actually pretty much most of the large banking computer network crashes the BBC are refering to in this article can be traced to the backoffice and maintenance of the systems being outsourced to India from the UK less than 8 months or so earlier and the whole way its been approached (to save money by offshoring skilled labour to where its percieved to be cheaper).
So banking, long term systems with ultra stable operation, outsourced maintenance, fire all the people who know the systems, dont get reasonable knowledge transfer because of the scummy way it has been managed, and 6 months later find your core business reliant on that infrastructure goes to shit. Sending inter bank transfers on a schedule into swift has little to do with this and is just a excuse being trotted out to cover up the whole shitstorm created by mis-management.
Disclaimer, I work in large corporate areas in the UK and have had a birds eye view of the farce.
...those banks with the strongest DNA will preserve a portion of their genome for future generations. Those who aren't willing to share will of course be destined to the dustbin of history, but those who are willing to open up their secret sauce stand a good chance of passing off part of their essence for perpetuity.
Time is what keeps everything from happening all at once.
no banks do lend the money they get from deposits.
creation of money happens when this process continues-
X deposits $100. bank after keeping (say) $10 due to statutory requirements, lend $90 of that. Y who got it(either from bank or after transactions from persons who got it from bank) then deposits $90 in another bank. that bank keeping $9 for statutory requirements lend $81. and this goes on. so from that $100 banking system create another $800(if statutory requirement is 10%). that is what is meant by creating money by banks.
Banks don't lend the money you deposit. That's YOUR money, not the bank's. Banks create the money they lend (out of nothing).
No that is what central banks do. Banks do lend you money from deposits, but guess what the people who you pay that lent money to do with it? They deposit it again. In a bank. Which means the bank can lend it out again, and again, and again.
It's really quite ingeniously stupid:
1. In an area there are three houses, and three people - Alice, Bob and Mary. Mary owns her house, which she bought for $100k with a $10k deposit. The rest just rent.
2. Bob and Alice both want to buy a house. They go to the bank, and the bank says because they are a responsible bank they will only lend up to 90% of the price of the house. They look at the value of sales in the area and determine that houses are worth $100k based on Mary's original purchase. They are prepared to lend each one $90k. At the auction, Bob is able to outbid Alice because he has saved a bigger deposit. He ends up paying $110k for the house. The bank is fine with the price being higher than market value because it knows it can recover the $90k loan by selling the house for $100k if Bob defaults.
3. Mary receives the $110k from Bob, uses it to pay down her mortgage of $90k, and deposits the remaining $20k with the bank. She thinks she did pretty well making $10k off her housing investment.
4. A little while later Mary changes her mind and decides that she wants to buy her house again. Now both her and Alice are in the market for a house. They go to the bank, and the bank says because they are a responsible bank they will only lend up to 90% of the price of the house. They look at the value of sales in the area and determine that houses are now worth $110k, based on Bob's purchase price. They are prepared to lend each one $99k. At the auction, however, Alice is now desperate for a house. Even though Mary has the money she made from the previous house, Alice has saved hard and is able to scrape together enough for a $120k bid. She wins the auction and buys the house. The bank is fine with the price being higher than market value because it knows it can recover the $99k loan by selling the house for $110k if Alice defaults.
4. Bob is overjoyed. He just made $10k from his housing investment. Alice raises the mortage, and pays Bob. He pays down his $90k mortgage and puts his $30k into the bank.
5. Bob then tells Mary she needs to just get into the market and buy because prices are going up so fast. Mary has already made money from housing, so she agrees. Alice hears how much Bob and Mary have made in the housing market, so she looks at buying an investment property. They all go off to the bank again...
Banks do create money.. Read it straight from the Bank of England!
http://www.bankofengland.co.uk...
This article is just about what I would expect from the BBC. Apparently the writer has no domain knowledge or experience of his own, so he relies entirely on what a number of different people (some of them self-seeking) see fit to tell him. Then he tries to fit the pieces together, like a rather slow child attempting a jigsaw puzzle.
1. The title "Is old tech putting banks under threat of extinction?" is precisely the wrong way round. As we can all see, "old tech" has stood the banks in good stead and enabled them to run continuously and fairly reliably for 60 years or more. It's the addition of "new tech", and changes in the business, that add the risks.
2. '"For the next five years - and we're talking globally - every incumbent banking player who's been around for a while will have an increased risk of outages," says Julian Skan, managing director of financial services at consultancy Accenture'. The journalist adds no comment or criticism, because Accenture is entirely authoritative and reliable. For anyone who remembers that far back, "Accenture began as the business and technology consulting division of accounting firm Arthur Andersen". https://en.wikipedia.org/wiki/... The new name, as far as I know, was deemed necessary to escape from the appalling connotations of "Arthur Andersen". The interesting thing about the quotation is that it gives no reason for the alleged increased risk of outages.
3. Next, under the heading "Legacy issue", we are informed that 'The problem is that the old mainframe computers - the workhorses of the global banking industry - have been chugging away keeping tabs on all our transactions for decades now. They're slow and reliable'. There are only two glaring, outrageous mistakes in this. First, the "old mainframe computers" themselves do not pose any problem at all. Second, they are very reliable but absolutely not slow. No doubt Matthew Wall has some dim idea that the same mainframes have been chugging away for 60 years, but surprise! IBM and others have continually upgraded their mainframes, and those of today are among the fastest and most powerful computers on the market. The IBM guideline for mainframe response time used to be half a second - with up to 1 or even 2 seconds allowed where the mainframe was remote (in one case, users in Australia were getting a 2-second response time from a mainframe in London). As today's mainframes are much more powerful, and comms are quicker, I can't see that this response time expectation should have changed much. In fact, it is Windows machines and even Unix servers that are much slower and less consistent in the response time they give. Since mainframes were designed, along with their tightly integrated software such as IMS and CICS, to handle transactions at the fastest possible rate, they are far more efficient at this kind of work than any other computers - which is why the predictions, starting before 1990, of the mainframe's demise have never materialized. Oh, and Matthew - "The definition of 'a legacy system' is one that works".
4. "But the world has changed. We've gone mobile and online. We expect real-time transactions and access to financial services around the clock". And mainframes obviously provide the best possible back-end support for those requirements (which aren't really new anyway - 24-hour ATMs have been around for decades, and going "mobile" doesn't make any difference to banking systems).
5. "The new computer systems and programming languages designed to cope with this fundamental shift in our behaviour don't interact well with the old, slower back-office systems". This sentence is so wholly and inherently wrong that's it's quite hard to pick out the individual wrong ideas from the overall mess. The "new systems and programming languages" (whatever they may be - we are not told) were not designed to cope with "going mobile and online". They were partly designed to make computing (and especially software development) cheaper and more flexible,
I am sure that there are many other solipsists out there.
Next question?
Why is Snark Required?
Luckily various governments thought of that and guarantee deposits up to a certain amount.
In the UK there is no such requirement, and in the US it only applies to deposits in transaction accounts. It really ceased being a constraint a long time ago, because central banks must allow money creation to account for the needs of a growing economy, but they really have no useful way to know whether the money banks are asking for is going into bubbles or legitimate requirements. For this reason they just target inflation, which does not account for asset bubbles caused excess funds flooding a market.
Also, hedge funds and private investment banks are not constrained by these sorts of rules. If they believe they can profit by pumping up a market, they are free to do so. As Soros showed, if you are big enough, you can control the market, and make your own 'luck'.
i grant that statutory requirements has ceased to matter in some countries. however money creation is still the same process; with a 0% requirement $100 would create $900 by banking system, instead of $800 with 10%.
throughout money creation by banking system as a whole, each individual bank would have loans equaling deposits.
all one has to do is examine balance sheets of commercial banks, there
deposits+loans from central bank and other banks+capital = loans+statutory requirements + other assets( buildings etc)
and two biggest items would be deposits and loans, which would be roughly equal.
There's more to banking than ATM and POS transactions.
>"You put your card in the cash machine but nothing comes out. The bank's IT systems have crashed again. But you need money fast, so what do you do?"
You wait until it is back up in a few hours or try tomorrow because you are not stupid enough to run COMPLETELY out of cash before going to get more. It is called "responsibility".
They queue the transactions into a batch process.
The process runs debits first then credits.
As such, it first processes all the withdrawals, payment, etc. Then it processes any deposits.
The upshot of which is, you can get a direct deposit on Friday, go out Friday morning and pay your bills or buy stuff.
Although the deposit is in the batch, it processes after the payments and the bank gets to collect overdraft fees should your payments exceed the total in the account before the deposit.
So, although you have the money and have been paid, the bank gets to hit you with fee's only because of the way they line up the batch processing. If they were to process deposits first (As many credit unions do) it cuts down the number of NSF fees they can collect by more than half.
The bigger problem with the banks right now is that it is nearly impossible to get a savings account (or CD) that has an interest rate above the inflation rate. If the banks can't provide an incentive for people to keep their money there, then why would people do it? Sure a lot of people don't want to carry large amounts of money on them regularly, but most people don't need a large amount of money on them at any given time. They can keep the rest under the mattress and do just as well.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
makes the old systems obsolete, but impossible to replace
No. It may be (difficult | expensive | unprofitable | complex | a pain in the ass | a (herculean | sisyphean | Korean | Crimean | many eon | diahrrea'in) task), perhaps.
But impossible? No.
Nothing posted to
It's your money UNTIL you make a deposit. After that the bank owes the money and lets you use them.
So, although you have the money and have been paid, the bank gets to hit you with fee's only because of the way they line up the batch processing. If they were to process deposits first (As many credit unions do) it cuts down the number of NSF fees they can collect by more than half.
No bank worth their salt does it that way anymore.
It might have been true years ago, but it isn't true today.
I bank with Bank of America. All their "big bank" issues aside, they don't do what you describe. They provide a "pending balance" for anything credited and only charge fees if you go over your balance at the end of the day and haven't made it up.
If by chance you DO have a bank doing that, then leave, that is stupid.
sea shells do not have layers of complexity problems albeit come to think of it the process leading to creation of shells took billions of years to establish smooth out.
As an architect designing a distributed horizontally scalable solution with commodity hardware to replace a legacy mainframe based system at a major US bank, I can attest to the near impossibility of such a feat. The problem is one of reprehensible management that silo themselves into little fiefdoms in there ever present quest to backstabbing their way up the corporate ladder. The culture in management is so hostile that positions for middle management are opening up and being offered to technical people like myself who are turning it down because who wants to eat shit and be in meetings for 70 hours a week for what, 10k more per year? No thanks, I actually like spending time with my family. Further still decades of offshoring and outsourcing have sufficiently hollowed out these organizations to the point where nobody knows, cares, or values doing the right thing. Most of the time they are substandard technical talent at best. Management couldn't buy a clue though they sure try. Everything some consultant comes in to look at stuff and offer advice, they are basically just put in charge of doing actual management. Literally you don't get much more hollow than making the consultant a bona fide manager. Really? You just wrote the vendor a blank check! Of course his management discretion will be to buy more and more products and services from his company, and bring more and more of his buddies into this gravy train. Then when it falls apart, consultant is kicked out and blamed for all the problems, then they cycle in the next company with a flashy PowerPoint and sales guys with a good golf swing. Then we have the problem of them not understanding IT in the slightest because they have been out of the technical game so long or they are an MBA suit. They don't understand how a successful project is run, what people are talented and which are good pretenders, and throw in buzz words they hear at a conference like, "Scrum" and "Agile" but then set it all up for failure by insisting on projects that are Fixed Date AND Fixed Scope! Seriously, when has that ever worked? Clearly not anytime in recent memory judging on maybe the single digits project success rate that you boast as an organization. Some messed up part of their mind believes that people work harder when you set a hard deadline and whip them. OK, I am not challenging the veracity of this, merely that hard work is what makes an IT project successful. No, careful methodical planning and diligent project management make an IT project successful. If we had all the answers and I had 10 really smart guys and full participation of interface teams, we could knock this out in 3 months. To get there requires a lot of analysis, design and planning though. Last I checked the project isn't failing because we don't have enough warm bodies banging on keyboards, it's because we can't get 40 teams to coordinate, we can't get the business to commit to scope, and requirements suck because you have been treating analysts like replaceable cogs for decades. No, the real goal isn't the project, it is to grow a team bigger than your colleague and have more face time with executives because ultimately that is what gives you advancement. This is the reason whyou these projects are seemingly impossible and almost always fail at the bank.
in theory "with a 0% requirement a bank can create any amount of money", but since quite apart from salutatory requirements, a banks has to hold on to some of the deposits to cover daily withdrawals of deposits (usually less than 5% of total ) bank can never loan the full amount of deposits, people, and i here, use salutatory requirement percentage in explaining this process because it is usually the bigger.
You are 100% wrong. Banks do not lend from reserves. Here is the Bank of England - the UK central bank - stating this: "...the majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits"
Sounds like someone hasn't watched "It's a Wonderful Life".
Aside from being a sappy Christmas movie, it also tells the fundamentals of how banks work.
Why else would everyone withdrawing their money at once (aka a run on a bank) cause it to collapse?
is use one of the 5 other Credit Cards I have that have lines of credit available that route through a different network. Worst case scenario I pay an extra 2% to borrow the cash for a few days. I'm also going to plan my purchases and bill payments around bank systems crashing and occasionally argue with customer service to get a late fee waived when they couldn't automatically bill my bank account and I didn't notice until I got a text message & and email telling me I'm over due. And because I'm a good (profitable) customer they'll waive the fee.
See, this is only a problem for poor people living paycheck to paycheck without any lines of credit. While it's true 66% of Americans live paycheck to paycheck most of them have a few lines of credit to patch this up (though at high interest). But for guys like me that are doing so-so (enough money in bank for a few months bills and lots and lots of credit) it's at worst a minor inconvenience.
Now, for the bottom 20% who have shit credit, no savings and shit jobs they are screwed. But we've never cared about them before, why start now?
Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
is two fold. First, the Indians know Java, and most of the mainframe code is Cobol. if you want cheap programmers you have to start moving it to Java. Plus the old Cobol programmers are dying/retiring and companies in America are loath to train. Half the reason they want the Indians is their trained overseas for peanuts on their own dime.
:P.
The other problem is they were built and their software written when space was at an absolute premium. Some of the systems can't handle the really large transactions banks and B2B customers want to do. They'll max out at 9,999,999 or so when $100 million transactions are standard and billion dollar ones not far off. Plus they're terrible at sending through complex invoice data. They can do it, but it's usually EDI which is a mess. If you've ever seen an EDI spec doc (or beaten a Zombie to death with one) you know what I mean.
Why is that such a problem? Because accounting automation is the next big thing. Businesses do a thing called 'reconciliation' where they track everything they sold, for how much and then compare it to the bank statements. This way they don't wake up one day to find they've been giving stuff away for free for a year and lost millions. In a big company it happens all the time because your rank and file peon doesn't care of the mega corp gets paid. If the checks stop coming from Company A they'll go work for Company B. Same shit, different master. But you better believe Company A cares
Believe it or not right now that reconciliation is largely manual because banks suck at handling data. Updating their systems will fix that.
Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
Here's to hoping those bastions of evil go extinct!
Legacy hardware is really hard to move from. It can feel impossible at times. But survival is a powerful motivator.
It's really, really expensive to move off old hardware, but it's not impossible. If it becomes a matter of life or death of the organization, things will get done. If they don't, the organization dies, and someone else steps in to fill the void. In that case, death was inevitable and necessary. The world does not end.
I've occasionally gone to an ATM that wasn't working. I've occasionally tried to log on to my bank's Web site, to find that the site was down. These events were annoying, but not catastrophic. I found another ATM, and waited a few minutes for the site to come back up.
There is little evidence that things are getting worse. Quoting some guy at Accenture saying that it's getting worse, doesn't make it so. My experience is just the opposite--electronic and ATM transactions seem to be getting easier and more reliable, not less.
Remember when you would go to the store, and the credit card machine wouldn't work because the store was receiving a fax on the same line, or was just out of order? When was the last time that happened to you? I'll bet it's been a while, at least, if you live in a first-world country.
My bank which is a local community bank actually processes deposits before debits. I can overdraft on Friday night and deposit a check on Sunday in the overnight box and have it in before the overdraft hits.
They also pay the ATM fees if you withdraw $50 or more at a time at the ATM to make up for the lack of ATMs they own being a smaller bank.
Not all banks are the greedy types.
I worked on DDA at BofA at Market and Van Ness in '69. Data center is still there and they're still running DDA. Want to stay in business, never run out of lipstick.
Society cannot do without banks. If banks were eliminated tomorrow, there would be business popping up all over the place doing similar things banks do even if you called them something else. People need to make money and the aggregation of money easily and safely portable and people need loans. It's even more important with international trade.
The assumption that people actually carry enough cash to pay for a tank load of petrol, especially in Europe where it's a lot more expensive because of higher taxation, is highly dubious. So when the bank refuses the cards of a lot of customers one day it's going to get ugly rather fast.
This story makes the point
http://www.bbc.co.uk/news/busi...
add in those who are on the bread line who can't afford to have that sort of amount of cash hanging around, and there's a big issue. As ever, those of us who are comfortable, have several credit cards and a reasonable credit card limit don't have a problem. But there's a lot of people who don't.
Certainly in the UK, a awful lot of good people do contracting rather than sticking with one company. Your superb dissection of what's wrong helps me understand why! I hope your escape tunnel building is going well; by the sounds of it you need it.
But you need money fast, so what do you do?
Um... don't live your life so close to the edge of an empty wallet? Carry a credit card? Any number of things, really, except relying on your bank's ATM to be your personal ATM - so to speak.
It must have been something you assimilated. . . .
Why do you even need a mainframe? Just put it on the cloud.
Signed,
Web 2.0 Dev
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
It happened in Greece as well - that's the EU. Limiting daily withdrawals to a pittance.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
And it's already happening.
They'll either fund or spin off new "hip and modern" banks targeted at urban millennials. These banks won't have branches. Everything will be done online. If you need cash, they'll have a relationship with the ATM networks that serve credit unions*, so as to cut down on the fees. But you won't want to use cash. You'll use your card for everything, because you'll get points and you'll automagically track all of your expenses into categories and budgets via their iPhone app. And said app will easily integrate into mint.com, unlike traditional banks whose connection into mint breaks down every other week. You probably won't even have a checkbook for your "checking" account. Because who writes checks anymore anyway? And because of the lack of overhead from maintaining branches and other legacy cruft, these new banks will have significantly lower fees, and give out lots of "free" stuff vs. the traditional banks.
They start small, and are precisely targeted and marketed. So the initial capitalization can be modest. But most importantly, since they're starting fresh, they aren't encumbered by decrepit, 60-year-old, legacy COBOL. The backend systems won't be written in the latest trendy languages like node.js, go, or Swift... though the user-facing sites and apps may be... they'll be in something with a more solid foundation, but nevertheless still current and with a much larger talent pool, like C++ or even plain old vanilla C.
As the bugs get worked out, and the new systems prove themselves, and the new banks scale up successfully; they'll eventually be acquired or folded back into the parent bank. They'll stop marketing exclusively to hip, urban, millennials and first bring more customers onto the "new banks" ("Now a JP Morgan Chase company.", with full access to the capital which that entails.). Then they'll build up the new backend and transition their existing customers over. And finally, they'll terminate the new bank branding ("But don't worry, all of the features you've come to know and love are still available to you** as a JP Morgan Chase customer! Only the name has changed. Plus, you can use every ATM in the Chase*** network. And you now have the option of visiting any of out JP Morgan Chase branches**** for your banking needs!")
* Some of these "new banks" will actually *BE* credit unions, instead of "banks". Even the fairly well-established credit unions tend to already be significantly ahead of the curve versus banks.
** Additional fees may apply.
*** A $3 fee will apply per withdrawal. Additionally, there will be a $4 fee for using an ATM outside the Chase network.
**** Additional fees may apply.
Imagine all the people...
I suspect banks like the system of holding onto deposits and not updating balances immediately. There may be technical reasons too .......
Yes, the technical reason is that the banks were wired up in the olden days when the speed of light was only 2mph.
My Sig spits 40 cal lead... I ignore ACs - be a grown-up, show who you are.
To which non-AC post were you replying?
I assume the AC post asking "Would using Rust help?" was making a joke, like asking about using a beowulf cluster back in the good old days, and it just went completely over posters' heads. The alternative is too disappointing to bear.
And best of all, when THE STATE needs your money, they can just reset your accounts to whatever fraction of what you once had.
Ask anyone from Cyprus.
"Everything is stored securely in the Microsoft Azure cloud and even our loan agreements are signed electronically, handled by Docusign."
:)
The solution is obvious, the banks should put all their backend processes on the industry standard Microsoft Azure cloud
Money can be created without a bank, like this: A businessman enters a hotel and pays for a room 100$ The receptionist escorts the businessman into his room Meanwhile, the hotel accountant pays hotel's debt to the local gas station, total 100$ Gas station entrepreneur pays his debt to the local whore, total 100$ The whore pays her debt to hotel, total 100$ The businessman is not happy with his room, and he is returned the deposited 100$.
You go to the stash of cash that you have, which is twice your anticipated daily requirement and start to use that.
What's that, Lassie? Someone doesn't think ahead? Do they have a Darwin Award, yet?
Birds are not dinosaur descendants;birds are dinosaurs, for all useful meanings of "birds", "are" and "dinosaurs"