Don't touch the Mainframe....
The IBM system/360 was rolled out in 1964, Microsoft Excel was first available in 1985 on the Apple Macintosh 128k computer, and there are 220 billion lines of COBOL code which was first used commercially in the early 1960's still in use today.
The three with a history dating back over 60 years all have something in common... If any of them were removed from the financial services industry today it would likely cause a collapse or certainly a huge derailment of the global banking system, in turn creating untold economic havoc and destruction to peoples lives. Scary right....
So how did we get here? The easiest observation to make is that Bankers were busy being Bankers and not technologists. Sure they could innovate with ATM's, credit cards and embrace the commercialisation of the internet (read had no choice to), but they daren't touch their core systems. The mainframe was king. Nothing had the processing power, was as robust and reliable as big iron. Today the challenge they face is the cost to maintain that fixed IT infrastructure, where each year more gets bolted on, more short term sticking plasters are required and they are having to accept that those that are understand COBOL code are now either retiring or dead. Keeping Frankenstein's monster functioning will only get harder and harder.
When "keeping the lights on" is hard enough and the fear of business disruption, falling foul or regulators or causing client detriment is always front of mind, then its easy to see why Banks are more than reluctant to undertake wholesale digital transformation. Focusing on the fringes becomes the strategy, with more often than not innovations taking place in silos and more manual workarounds and processes being introduced. Frankenstein's monster just keeps getting uglier. The simple fact then is not migrating fully to the Cloud with the economies of scale, agility and flexibility it affords is no longer an option. Banks cant deny any more that as experienced staff leave then mainframe environments will continue to become more vulnerable to losses of legacy system knowledge and expertise.
But Banks aren't standing still and are attempting to innovate, they are seeking to embrace artificial intelligence, big data and API's, and are looking at ways to automate processes and improve operational efficiency....
….Yet something doesn't feel quite right. Innovation can often feel forced, laboured, stifled, not aligned to first principles thinking, with the "why" often lost to bureaucracy and process. The client is seen as a transaction and something to be processed rather than a relationship to be courted and truly valued...…This is culture....
Over the years Banks cultures have become ingrained in the three P's - Process, Policy and Product, Why? Because it was an efficient way to sell widgets to customers, putting them into buckets based on a defined set of criteria and rules so risk polices could be adhered do. In a world where "banking was somewhere people had to go to" or "something they needed to do" this approach could and for decades did work. Today though where banking is increasingly abstract, embedded and ubiquitous, where a personalised experience matters the three P's just don't cut it.
The challenge is that bank staff have been trained and programmed to think task over relationship, to operate always within the process and not outside it, and that has over the years led to a culture of innovation risk aversion, short term target focus and a fear of failure. Bank staff can hide behind the Product or the "I followed the process" when faced with customer frustration, and even the search for client feedback has become a target to be hit, rather than something to be truly valued to help drive change.
Legacy systems built for the analogue world only serve as a maintaining factor to a culture of process first, customer later, as rather than being able to think creatively, Bank staff often find themselves acting as the conduit between the client and the banks systems. When things invariably go wrong the human role is to fix the issue or at best manually intervene before the process starts impacting the client. All this serves to reinforce the three P's culture, whilst often masking the need to make the changes needed to improve the client experience.
For Banks to truly deliver digital transformation to thrive in a world where the way in which we consume, transact and interact has permanently changed, its not technology that needs to be the focus but rather culture. To do it will involve the bold step of moving away from the short term target approach, to create a real focus on solving customers problems rather than thinking product/process, whilst encouraging rapid experimentation and yes even failure. Organisations that succeed in creating true innovation cultures value openness, empower and enable autonomy , take risks, break things and fail fast, but above all start with the customer and work back.
The thoughts "we've always done it this way", "It will be too hard to change" or "the regulators wont like it" are burned in to the psyche of many Bankers, but they can no longer be accepted as an excuse. The opportunity is there to embrace as despite everything banks still convey trust, stability and surety and that can never be underestimated, but they must reach the conclusion that they don't "own the customer" and that only through letting go of long held beliefs, re-imaging business modes and embracing partnerships will they truly be able to transform. Bankers will be minded to heed the words of Bill Gates back in 1994,,, "Banking is necessary, Banks are not."