Banking Must Be Real-Time And Near-Free

Chris Skinner

I often make the call that banks should replace their core systems if they’re old and legacy.  I’m usually laughed at when I say this, but think about it:  How old is your bank’s core system?

In some countries, like Poland and Turkey, you might guess 15 or 20 years old.  That’s fine.  I was recently in Turkey, and the banks there said they had been on a study tour of American banks and couldn’t understand why the American banks were all talking about the problem with their core systems. Turkish banks have no problem with their core systems.  That’s why Turkish, Polish, Chinese, African, and other emerging, developing, and maturing market banks are winning all the innovation awards.  Their core systems were born after the Internet was invented.

Then we come to America and Europe.

Large banks with big brands and globalised names have an amazing complex back-office infrastructure, with core systems created through decades of merger and acquisition.  Many have multiple systems operating for the same processes.  For example, one big bank that shall remain nameless has more than 60 payment processing engines and 35 mortgage systems.

That’s a complete disaster.

First, it demonstrates massive fragmentation, and hence cyberattacks are going to be lethal, as hackers can easily find holes in the wall of the bank’s armour.  Second, it demonstrates massive inconsistency, so any chance of providing a single customer view is impossible.

But the real point is that I now champion the idea that everything in financial exchange has to be real-time and near-free.  In all other markets that are Internet-based, everything is real-time and near-free.  In music, travel, taxis, entertainment, and more, we live in an on-demand market that is real-time and near-free.  Thanks to the 3D and 4D printing, we will soon have on-demand everything, with no supply chains hampering our ability to deliver goods now.  Everything is now.

I want it now, and I want it all real-time and near-free.

And there’s the rub. The banking systems were built 50 years ago, using the then-latest technologies, to operate in days with high costs.  SWIFT, Visa, MasterCard, and others were leaders of their day, providing overnight batch update systems that allowed counterparties to trust each other in cross-border engagements.  Today that line sounds like such a load of tosh.  I don’t need infrastructures that endorse trust to create trust.  I just need real-time and near-free clearing and settlement.

That’s the point.

What is batch?  What is overnight?  What is a counterparty?  I don’t care.  I just want to deal online now, in real-time, and know that there is an immediate exchange of payments and funds that is trusted and near-free.  The Internet gives me that, but banks can’t, because their systems were implemented in 1965 and are fifty years out of date.

Most banks in the developed economies of Europe and America began digitalising in 1965 and have found, to their cost, that dealing with those old mainframe systems is now their biggest liability.  As Patrick Jenkins reports in the FT:

In the boom times of the late 1990s and early 2000s, many banks failed to invest in technology, preferring simply to ride the wave and maximise profits. During the financial crisis, meanwhile, there was no time to think of tech investment. And in the post-crisis period there has been no money. The net result across much of the world is a banking system that is creaking at the joints.


To put in perspective, the real issue here is that so many banks are running systems that were implemented before Mark Zuckerberg was born that they’re going to be dead meat in the age of real-time connectivity in the near-free world of today’s mobile Internet.  Get with it, guys, and renovate, replace, reform, and rebuild.  If you don’t, then you’re going to be a lovable Dodo.

What does that mean?  Dead but not forgotten.

Want more on legacy banking systems? See 3 Greatest Challenges Of Core Banking Transformation.

About Chris Skinner

Mr. Skinner is chairman of the Financial Services Club, CEO of Balatro Ltd. and comments on the financial markets through his blog the Finanser. He can be reached at