It's Not Only the Economy, Stupid, It's The Maturity!

I first became aware of banking technology in 1960. My company (Honeywell EDP) had sold a computer to the First National Bank of Boston (later Fleet Bank and now BofA), and that was a big deal because it was the bank's first semiconductor computer. Vacuum tubes were old technology. The new computer meant everything had to be reinvented-mainly applications software. It would be eight years before the late Ken Kirchman would introduce the novel idea of banking software for sale. So every large bank was doing the same thing First of Boston was doing-building its own software. And most small banks were "hooked up" to their correspondent bank to get the daily work done. No one questioned that approach mostly because in 1960, we didn't have the benefit of pundits like Gartner, Forrester, TowerGroup, Aite, Celent and Financial Insights to offer their guru perspectives. Today they have a lot to say about an industry that uses 60s technology.The weird thing about large banks today is that 77 percent of the 128 largest banks in the U.S. are still using their homegrown 1960s software. Twenty-three percent of them switched to vendor supplied software (Fiserv, Fidelity National Information Services, Metavante, Jack Henry & Associates and Open Solutions Inc.), but that stuff is legacy as well. Why even M&I Bank (#23) whose estranged offspring (Metavante), a very strong leader in banking technology who should be directing its best customer to better systems, is using 43-year-old core systems. As weird as that might seem in a world where technology generally gets replaced every three years, I understand why 128 large banks are still using antiquated technology, and I'm not criticizing large banks for not making the move. Even though eight offshore vendors (Infotech, Infosys, Misys, Oracle Financial Solutions, SAP, TCS Financial Solutions, TEMENOS, and Wipro) are offering modern technology to banks everywhere else in the world, large U.S. banks aren't budging.

If the large bank CEOs of the sixties were around today, I believe they would be asking, "Aren't you fellas finished yet with what you sold me as a revolutionary generation upgrade of automation?" I would be happy to serve as spokesman for the IT group, and this is what I would proclaim. "Yes, gentlemen, we are now pretty much finished with core system development. We will always be adding to and modifying our core system, but the core system is like the foundation of the bank's main office building-It's a monument, and will remain forever."

And this is what I mean about maturity. Some things have to end. After 48 years of development, it's OK for CIOs to say, "We finished building our core system, and we are now committed to keeping it fresh as the business changes."

Now how do I tell tech vendors that the largest single piece of business they sell is leveling off to buyers who represent only about 2 percent of the population? The simple answer is, you can be happy with stable, but modest growth, or you can become very inventive and create the new paradigm of banking technology.