Friday, 27 February 2015

Banking Liberation Movement

Back in the 1970s, when a high-end supercomputer had about the performance of today’s entry-level cell phones and networks were expensive proprietary technology, ATM transactions were … wait for it … free.

And you earned interest on a cheque account.

Banks made almost all their money on the difference between the deposit and lending interest rates.

Core computer technology, based on Moore’s Law, is about on billionth of the cost it was 45 years ago (price per transistor roughly halves every 1.5 years).

Never in all the fields of human endeavour has such a massive improvement in efficiency been so extraordinarily wasted.

So what made everything so expensive? Not having higher paid more skilled staff in the branches – that has also gone backwards. The mind only boggles at how banks have destroyed such a massive opportunity. With careful design the cost per transaction could be almost zero, and saved costs shifted to quality customer relations.

If companies like Google and Facebook can offer free services on a massive scale, only making money on a tiny fraction of total transactions, how hard can it be?

Banks have fallen into the trap many enterprises fall into of trying to maintain outdated systems on the basis that it is too expensive to re-engineer them from scratch, with the result that their software accretes more and more layers of cruft and becomes harder and harder to maintain.

If banks cut their services back to what they had on offer in 1975, carefully coded to maximum efficiency and small total software size so it was manageable, then put a web front end around what you could do back in 1975, you would have most of what you can do today and it would cost a tiny fraction of what they spend today on software. The biggest cost would be ensuring you had the best possibly security (and some banks don’t even have that…).

So why don’t they do that?

Each major bank has accumulated an army of software developers dedicated to maintaining the complexity of the existing systems to maintain the need for an army of software developers. And if they all do it, they can pass the costs on to the customer.

Nice work if you can get it.

So what can we do?

How about this for a radical idea? Free banking software. The free software movement has delivered some of the best operating systems in use today, web browsers, sophisticated database engines and the most robust network stacks available today. Why not the back-end of a banking system?

It could be done in 1975 with one-billionth of the computing power available today. How hard can it be?