

Ultimately, Banks are ‘Big Data’ and Technology Companies - zt
http://blog.zactownsend.com/ultimately-banks-are-big-data-and-technology-companies

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yarou
Disclosure: I work for one of the biggest US investment banks.

They fed us this line during training, and often senior leaders who left our
company would say the same thing when interviewed on CNBC. This is naïve at
best though. Banks are only recently starting use "Big Data" (how I love this
buzzword), because they have unmaintainable mainframe systems running on
LPARs. The reason it's "Big Data" is that as time goes on, the retention of
financial data will increase as well. Banks are definitely NOT technology
companies, at least as far as the compensation structure is concerned ;)

Don't believe me? Compare any bank CTO to an equivalent position in front
office.

~~~
zt
(I'm the author).

I completely agree with you that currently most banks only pay lip-service to
modern technologies, even if they throw buzz words around like crazy.
Mainframes, COBOL, etc, are still the standards in many, if not most, large
financial institutions.

My point is that when you actually boil down what a lot of commercial and
retail banking is to it's core (I would exclude capital markets here, mostly
for simplicity) then it's a technology and data problems. It's a technology
problem that is surrounded by legacy systems, culture, and regulations.

Ultimately, though, I believe that those banks that can most quickly infuse
themselves with modern technology and -- most importantly -- actually run
themselves like technology-first institutions, will be the ones that have the
most success in the future. I'm not sure any bank is currently doing that,
exactly to your point about compensation.

~~~
yarou
I agree with your point on commercial and retail banking. I also agree that if
banks pivot in the direction of "technology-first", they will succeed in the
future. I'm a bit skeptical (perhaps I'm biased in this regard since I work
for one) that they will pivot in the near future though.

------
jrockway
It really depends on what team you're on. When I worked at a bank, I worked on
a pretty competent team. We didn't do anything that important, but it did work
pretty well... we had automated tests, continuous builds, and all that good
stuff. Most people could open up someone else's code and work on it. (This was
largely due to the efforts of one engineer on the team, but you have to give
credit to the management for letting him do it :)

At the same time, I would work with other teams, and it just amazed me the
kinds of problems they caused. One team worked on streaming data from
spreadsheets to other spreadsheets. (Don't ask me why all market data was
calculated using spreadsheets.) This was implemented as a set of servers that
read from and wrote to a proprietary multicast network that was usually down.
It didn't matter, though, because the servers themselves "health checked" each
other, and if it detected one was responding too slowly, it would kill and
restart it. Except sometimes the killing and restarting caused _that_ server
to fail to respond to health checks, so the system basically consisted of
servers killing each other all the time. (No, it didn't actually work despite
all this. It was a constant source of problems, and was over a million lines
of C++! It couldn't even quit without core-dumping because of memory
corruption!)

Another team I worked with wrote their application on Java. The company had a
policy of only allowing developers to develop on Windows machines, but this
team needed to deploy to Solaris. Their solution was to develop and test it on
Windows, copy it to the Solaris machines on launch day, and turn it on. But a
Windows-only library crept into the core. If this were rocket science, we
would not have gone to space that day.

But, there were some pretty good initiatives. One was for a single team to
rewrite all software at the bank, in their own C++/C#/Python hybrid, with
their own IDE, making all other software engineers obsolete. And despite how
crazy that sounds, they actually did a good job! They gave every obscure
system at the company a unified API, so a normal user could stitch it all
together with a tiny Python program. And write tests for it. It was rough
around the edges while I was there, but obviously the way forward. (The big
advantage: middle managers had no control over technology, only making a
product. So there were no debates ... or rather, horrifyingly bad decisions
... over what servers to buy, what language to use, who would pay for the
sysadmins... all they needed to do was design and implement. It was brilliant,
and I wish them the best of luck.)

------
sz4kerto
This is a really naive view of banks. Big banks, especially investment banks
are mostly politics-driven institutes. Technology is important, data is
important, but those two are not nearly enough to run a successful institute.

I think everybody knows that who has been reasonably close to people actually
leading these institutes. Look at GS, MS or the rest - the CEOs and other top
managers are many times coming from the government, and in many cases, ending
up in government.

Small hedge funds, prop trading shops are big data/tech companies, that might
be true. Even in those cases knowing the market (which means significantly
more that knowing the hard data) is of paramount importance.

'Beating the market' is not how these institutions make most of their money.
Sales, politics and other kinds of human interaction is a make or break
factor.

~~~
mimiflynn
> I think everybody knows that who has been reasonably close to people
> actually leading these institutes. Look at GS, MS or the rest - the CEOs and
> other top managers are many times coming from the government, and in many
> cases, ending up in government.

This doesn't disprove the author's point. The author is pointing out that a
lot of technological innovation (eg - ' such as application programming
interfaces') is churning inside of banks with no notice to the general public.
This point is completely removed from politics and CEOs. The article just
points out that there is a lot of software development within banks.

~~~
sz4kerto
> This point is completely removed from politics and CEOs

No, it's not. I happened to see the biggest investment banks' technology
departments from the inside (i.e. I worked on very core technologies), and
this statements is just simply false. Yes, there's a lot of software
development going on, but it's quite a slow-moving animal. They _used to have_
a lot of cutting-edge stuff, but nowadays most of these are superceded by
better engineered implementations available to the public. And this is a big
struggle for them, the more they've invested in proprietary IT decades ago,
the more money they made with it around the late 90's, and the more difficult
it is now to move towards industry standards.

~~~
mimiflynn
I've been working at banks and financial institutions for years, and am
currently working at a large investment bank and do not agree with you.

Yes, these large institutions have to support older technologies, but they are
still creating innovations in the way the author suggests. There are several
products out there available to the public that are better than what some
banks are putting out, but the products banks are making for their core
clients that aren't the general public as very good and relevant to those
niche users.

------
agilord
I agree, banks and financial institutions are data driven businesses.

I have seen several banks from inside, and most of them think that they are
driven by financial analysts, figuring out clever equations for managing money
(e.g. lending rules, mortgage policies, etc), while IT is just a cost center
for tracking the transactions. It's old school, and they change very slowly.

Sooner or later they shall realize that the transaction data they are tracking
is a good source of information, and they could use "hard" data (through some
machine learning and data mining), instead of or alongside of the "soft"
intuition of their analysts.

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fiatmoney
This is not true. Transaction volume for consumer banking, even including
credit card processing, is minuscule - a heavy customer might generate a half-
dozen transactions over the course of a day, and many of those (particularly
credit card transactions) are able to be asynchronously processed over the
course of days or weeks.

Ultimately banks are in the business of money _management_ , not money
_tracking_ and have been for the 700 or so years they've been around in
recognizable form.

Whether they could do this with less overhead than they presently do with new
technology is a separate issue.

~~~
dkimerling
I beg to differ. In a world of fraction-reserve banking, banks are in the
business of capital aggregation and debt issuance - in order to generate all
important "spread". But, that world - the world for the past ~700 years - is
disappearing.

We live in a world with collapsing credit spreads and Basel III will tighten
them even further. In the US, Dodd-Frank's prohibition on lots of fee based
income (which was a huge profit center for banks) and the disappearance of
debit inter-change due to Durbin makes banks very concerned about the future
of their business.

Banks are increasingly turning to transactional systems to make money.

~~~
eldavido
Hi Dan

I have a friend inside Capital One who tells me they're very concerned about
the future of the industry. In a nutshell, C1 makes money three ways: (1)
debit interchange, (2) net interest margin (NIM) and (3) fees.

Dodd-Frank basically killed debit interchange and fees (esp. with the
overdraft changes). If you think spread will keep collapsing, I'm not sure
what's left revenue-wise.

------
charleyma
Good point Zac, It's interesting to see how banks are shifting away from
traditional sources of revenue based on trading, balance sheet leverage,
advisory, etc into potential new sources that involve the monetization of data
more like a traditional technology company. I'm curious if there will be a
dramatic cultural shift within banks as traditionally technology has always
been viewed as "back-office"...

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gkuan
This reminds me of a VMWare acquisition last year of a cloud automation firm
DynamicOps. It turns out that DynamicOps was actually a spinoff from one of
bulge bracket investment bank Credit Suisse's IT groups. The bank appears to
have been quite supportive, complete with venture funding. Quite an
interesting story of how tech innovation can come from some unexpected places.

------
toadi
It's not only transactions. It's battling fraud. Mitigating financial risks. A
boo boo is not that we are offline but also merchants losing money.

~~~
tixocloud
And a huge damage to reputation as well

------
eldavido
When I worked at GS a few years ago, they often talked about the "high tech"
and "high touch" parts of banking.

You're right that transactional, lower-value activities like basic commercial
banking, credit settlement, mortgage origination, etc. are at their core,
technology problems, but a lot of banking, especially on the higher,
relationship-driven end (private banking, investment banking) is more about
customization and individual client service than technology.

Mentioning it because I find that model (tech vs. touch) useful.

------
jeremyjh
I've worked at one of the largest Bank's in the US for the last fifteen years,
and I pretty much agree with the author. I first discussed this with a co-
worker ten years ago and at that time I took the contrarian position but
looking back now I think he was right even then. This is a huge shift in
culture and focus but its recognized pretty much across the board, even I
think by the majority of people who will not be able to adapt and will be left
behind.

------
andyzweb
every sufficiently large company is to some extent a tech company.

~~~
generj
Yes!

But so long as it is merely a means to an end, we don't call them tech
companies.

UPS is a shipping/logistics solutions company, even though they have massive
Databases.

GM is a car company, even if they write lots of CAD/CAM.

------
chiph
Except for the largest banks, all the ones I've seen don't write much original
software for their core business - they buy packages and integrate them. They
then rely on the vendor for support.

------
avelis
This article really rings true for me. I am a software engineer at a then
software startup that is now acquired by FIS. When I first started at this
small startup it has the makings to be technology based. Then we hired
individuals who thought of the business purely from a financial services point
of view and slowly killed the culture. It muted it and dulled it's appeal. I
wish everyone at standard treasury luck and disrupting this space in a big
way.

------
jl6
I'm very much not convinced by the idea that banks have technology at their
core with a mere wrapping of business functions around it. Having worked for a
bank for many years, I'd say it's exactly the other way round.

Management of capital, liquidity, risk, etc. are the true core banking
elements.

------
bcheung
"There, far from the public eye, new technologies – such as application
programming interfaces – are allowing financial institutions and businesses of
all sizes to interact in new, faster ways."

This "new" technology called API sounds amazing. Everyone should start using
it.

------
jaggederest
Ultimately all companies will be technology companies. Software is eating the
physical world pretty quickly. Taxi drivers are going to be on the short end
of that stick in the next decade or so.

------
hosh
Banks as information and technology companies is a great insight. I think
we'll start seeing more of this creep into the noosphere as p2p public ledger
systems (like Bitcoin) becomes more mainstream.

I think it will also lead to a reforumlation of the concept of currency.
Rather than defining and conceptualizing currency as a store of value, it
becomes defined and conceptualized as data.

Arguably, the practice of accounting is already treating exchange of currency
as data. However, popular concept of money is still tied more with the notion
of "value", and emotionally with how much work and suffering one puts up with
to trade for a reward. Maybe this popular notion will shift.

------
7Figures2Commas
> ...new technologies – such as application programming interfaces...

In what world are APIs _new_?

~~~
dragonwriter
> In what world are APIs new?

Well, if you consider the whole history of human civilization, they're fairly
new.

------
InclinedPlane
Online financial companies (paypal, stripe, square, kickstarter, etc.) are
0.1% moving bits around, 0.9% ensuring that the moving of the bits is robust,
and the rest is a bunch of other stuff. Things like fraud detection and
mitigation, relationships with other financial institutions, relationships
with sovereign governments around the world, familiarity with relevant laws
and regulations, customer service, and so forth.

I can set up a physical bank in 15 seconds. All I need is a shoebox (the
vault), a notebook (the ledger), and a pen. And, indeed, in some circumstances
this sort of bank is actually appropriate. But at the scale of worldwide
commerce it is no more appropriate than a "banking" system that thinks that
the software is the most important component.

------
static_typed
Most of us who work in banking IT, are lured in either by the proported larger
salaries, or the opportunity work on big systems, and interesting problems.

The reality is a little less glamorous.

The salaries can be larger than average in some roles, but then again, as you
will be working longer hours, your overall hourly wage will be somewhat less.
Also, bonus? Interesting. You can work hard all year, deliver, be on track for
a nice share of the pie, then bang! Some tard on the desk does a run of bad
trades, or worse, hides losses, or the firm gets hit with regulatory fines,
then bang - either a small bonus or more famously, a doughnut (zero bonus),
with the promise that next year will be better. Just work as hard or harder,
and maybe, just maybe, a bonus will come later. Maybe.

If you have ever worked in a competent professional IT setup, your eyes will
bleed, your heart sink, your soul evaporate when you are exposed to the full
horror of banking IT.

Sybase ASE - you will see schemas with 1000's of tables and many more stored
procs - not because they are all needed, but because each one is a sticky
plaster fix on the last sticky plaster fix. Oh, and almost nothing gets
retired, it just grows like a slow cancer, consuming all that get near to it.

Offshore and nearshore vendor staff will "own" and manage and support the
infrastructure, help desk, request system, application support and maybe even
more. It will be hell on earth just to get access to one of your application
log files to help troubleshoot why johnny-fucked-the-pooch trader tard tries
to blame the application for his poor selection of trades.

You will watch so-called partners and peers travel with ease and get what they
need, as they work 'for the business', on a business cost-code. You will be on
an IT cost-code, and you will need director sign-off for a trip to the
bathroom.

In short - the banks need IT, and they are basically fucked without it. But
then treat it worse than the department that fills up the vending machine with
coke cans each day. The reason is because YOUR management, IT management seem
destined to fuck you harder than the business ever would. I never knew people
could stand or walk without a spine, till I saw IT management.

~~~
Iftheshoefits
What you describe isn't restricted to banking. I've never worked in the
banking sector, but every software engineering position I've had at a company
that wasn't a technology (and specifically a software-driven technology)
company was in "the IT department." And "the IT department", even in places
where IT has a huge impact on the orderly operation of the business, in my
experience has been treated like a necessary evil (at best). I will never work
in such a department again because of the shit-tastic experiences I've had in
them.

Also your description of IT management in these places as merely spineless is
far too charitable, in my opinion. Words that come to my mind are
"incompetent, hypocritical, dishonest, creature of corporate politics."

~~~
ryanhuff
I don't think its unique to IT. What you describe can probably fit any role at
many companies where the role isn't in a profit center.

