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Banks have fallen into the trap many enterprises fall into of trying to maintain outdated systems on the basis that it is too expensive to re-engineer them from scratch, with the result that their software accretes more and more layers of cruft and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

The Great South African Bank Rip-Off

When I returned to South Africa after living abroad for 9 years, I was surprised to find how far the quality of service at Nedbank, a bank I've dealt with for 30 years, has slipped. Here's a small fraction of the problems I've had, all leavened with being asked "to whom do I have the pleasure of speaking?" every time I've contacted the call centre.

For a start, my cheque account was a on a low monthly charge, high transaction fee structure, which was suitable when I had a low number of transactions on it. This I could change, but the change only took effect in the next billing cycle. In the meantime, I was waiting for a credit card, and used my cheque account card for shopping, and incurred transaction fees at a rapid rate. Had I opened a new account, the new transaction fee would have applied immediately. Why should it cost me more as an existing customer than a new customer who walked in the door?

Then there's the credit card. For a start, I was treated as a new customer with no credit history on setting the credit limit, and told this could only be reviewed in 6 months. That set me up for feeling positive about a 30-year relationship.

Then I had a failed transaction on my cheque account. The merchant tried the transaction three times, then I gave up and paid cash. This showed up as three purchases and three reversals with six transaction fees. I am still waiting for those to be reversed more than a month later.

The one that really took the cake was when I bought some prepaid air time for a couple of cell phones, using my credit card on the bank web site. All three transactions incurred an "SST transfer fee". In Nedbank terminology, "SST" means self-service terminal, the machines they have in branches, so this immediately looked odd to me because I did an internet banking transaction. What's more, for a purchase, no transaction fees should apply. After complaining several times, these were reversed, no reason given. I have not since bought air time on the web site, as I was unsure if the reason for the problem was resolved. When my statement showed up, I was charged 73c for finance charges, despite paying before the due date. Another round of calls to the call centre (actually, several call centres: I tried the complaints department, who said I should talk to the card division, who referred me to the SAA Voyager card division: by this time, I was thoroughly sick of "to whom do I have the pleasure of speaking?").

It turns out that Nedbank regards any transaction on internet banking as a cash transfer. Please check this screen grab out. Does this or does this not include the word "purchase" in more than one place? How am I supposed to know that in Nedbank's world, this is not a purchase but a cash transfer? And why would any sane person, knowing that a cash withdrawal from a credit card incurs interest, make such a withdrawal to buy something that you can buy using a standard credit card transaction (the other meaning of "purchase") at thousands of locations around the country?

I think I made the point to them that I was sufficiently fed up that they should refund the 73c as well, but they ended with telling me this is the last time. Yes. It's also the last time I buy air time online from them, and if they really want last times, I'll be shopping for another credit card.

I do not phone a bank call centre because I want to make a new friend. I call them to solve a problem. Substituting fake politeness for competence is not a win. Get the same fake politeness a dozen times without useful effect, and you feel like throwing up when you get it again.