Community

The GBP 2M figure should attract a fine - er, award - as the most ridiculous budget line item of the year. Anyway, should RBS need a hug or otherwise deflect the blame for underinvesting in IT, it needn't look any further: 

6 Reasons Why Banks Can't Transform Legacy Applications

@SunilP:

TY for your kind words. Part 2 of this blog is already live:

Why Banks Can't Transform Legacy Applications - Part 2

Cost of replacing legacy systems is not prohibitive. It's actually the opposite. However, as I've mentioned in Part 2, cost reduction doesn't work as the GTM message. Packaging this in a different manner to appeal to customer C-Suites has helped a tech vendor succeed in legacy transformation.   

Technology and trends can keep moving on. But the underlying business processes have remained virtually unchanged in retail and corporate banking for ages. Which is part of the reason why legacy transformation for the sake of embracing latest technology hasn't happened.

Among others, the 6 factors I've described in my two part blog post are holding banks back from ditching their legacy applications.

@ColinW: TY for your kind words. Actually, these daily streetside microloans use some of the latest technology in India in the form of mobile POS. I didn't bother to mention this fact since mobile payment by itself doesn't mean innovation, but maybe that's only me. At 7.5% for less than an hour, M-Shwari's APR (sorta) works out to 65000% p.a. Historically, banks wouldn't / couldn't serve this market in Kenya, which is why M-PESA came into existence, so even such an exorbitant APR sounds competitive. This is not a common scenario and perhaps explains why M-PESA hasn't entered the mainstream anywhere else in the world, not even in neighboring Tanzania or Uganda, let alone South Africa or India. Therefore, I don't see the author's prediction about the 2.8B unbanked people worldwide getting their financial services fulfilled by nonbanks coming true anytime soon.

@BrettK:

I was actually asking if you found a bank that deals with you based on social media metrics. I alluded to your naming and shaming only to lay the ground for me to do the same with PayPal and M-PESA! I didn't think you were being harsh on HSBC because of radio silence on social media. However, I did want to point out that, even if they do respond on social media, many nonbanks are not trustworthy. But, all this pales into insignificance against the "bigger news". Hats off for bringing about the changes in the way HSBC deals with its customers.

As for whether these changes are easy to make or not, I'm not so sure. I remember the newly inducted President of PayPal - a much smaller and younger company that's supposed to have a totally different mindset compared to a big bank - saying that it'd take him a year or two to reorient PayPal to become more sensitive to its customers.

Any idea how much is the effective APR for this micro-loan given by M-PESA?

If regulators allow banks to charge similar APR, this might be a good space for them to enter in nations where the same M-PESA is tottering along. Take India for example. After several false starts over the last 3 years, M-PESA was launched here last month. I promptly went to the nearest Vodafone store to open my account. 4 weeks have passed. My account is not yet active. According to the store, 80 out of 110 applications have been rejected owing to KYC problems and I should count myself lucky that my application is "not yet rejected". Meanwhile, I don't have access to my funds.

JFYI, small banks in India make such microloans to vegetable and fruit sellers. Like cabbies in Kenya, these vendors start the day with empty baskets and empty wallets. Such loans are given in the morning and collected by the evening (although longer tenors are possible). Anecdotally, APRs work out to well above the regulated ceiling of 24%. Maybe these banks are too small to be regulated. 

@BrettK:

I normally refrain from naming anybody on this forum but, since this post is specifically about one name, I'll go with the flow in my comment.

At least HSBC paid out your account balance when they closed your account, or so I understand from your Huffington Post blog post. 

I can't say the same about many 21st century nonbank financial services providers: In my experience, they take their fees, freeze your accounts and hold on to your account balance for months.

I've had this experience with PayPal (Cf. Is It Adios To PayPal From India? on my personal blog). I'm currently having this experience with M-PESA. I'm waiting for this episode to end before I publish a blog post about it but here's a spoiler alert: I've paid my account opening deposit, Vodafone has taken its fees but my money is stuck while my account is flagged under different statuses in various channels viz. 'limited' per SMS, 'active' per telephone, 'not yet rejected' per physical store.

Given a choice between the inflexibility of banks and lack of integrity of nonbanks, I'd always prefer rigidity over cheats when it comes to where I'll keep my money. Maybe that's only me.

Since you believe that HSBC has done something that is "guaranteed to burn the relationship", I hope you've switched your account to someone else who offers business banking and has designed its customer-facing processes around Klout Score, blog readership and other social media metrics per your expectations with 21st century banking. 

@DanieleA:

TY for your comment. My post covers retail and corporate banking in general. But, given my payments background, what I've said is equally well applicable to GTB in general and payment hubs in specific. 

This is not the forum to shame anyone in particular but, if you contact me privately,

• I'll tell you the names of not one, but many banks, whose online payments have low uptimes and, when I last checked, their CTOs hadn't changed for years. 
• I'll also tell you about a bank which was hoping to replace all its legacy applications with a spanking new open systems payments hub. Over time, it found out that it needed one hub for FPS, another one for TARGET2, a third one for emerging market payments, and so on. Not to blame the bank or the vendor concerned (not ACI) but, for whatever reason, the bank today has a "legacy of payment hubs" and has barely managed to sunset 20% of its legacy landscape.

In this day and age, mobile apps are as relevant to banking as backend core banking systems and payments hubs, so I'd be remiss if I'd ignored Android apps. 

IMHO, if solution providers looked at end-to-end business processes in a holistic manner instead of just thinking about their own point solutions, they might achieve greater success in persuading top management of banks to ditch their legacy applications and embrace open systems.

NetSpend And Actiance Show Banks The Social Media Way To Go

According to Actiance's website, "Actiance's valued customers include the top 10 banks in the US, the top 5 banks in Canada, and 8 of the 10 top banks in Europe." Wonder if banks are forced to take this step despite using Actiance and similar technologies.

At least in this one respect, banks seem to be behave the same way everywhere: Whenever it comes to friction in any process, banks in India deflect blame to the regulator.  

When they're promised higher interest rate of just 50-100 bps, even seasoned investors succumb to the tempatation without asking too many questions. This was evidenced by the blockbuster sales of ARMS, MBS and other structured financial products before the GFC. Until P2P lenders get their fingers burned, I doubt if they'll bother about credit check and things like that. They're more likely to be swayed by the 200 bps higher interest rate available from these new lending platforms.