Why Bankers Need to End ‘Vulgar’ Practices
In 2002, I helped launched a magazine called Lending Intelligence. Even though you never heard of it, Lending 
Intelligence was a good magazine. It had an agenda: to end the siloing of lending at banks. We failed, and the magazine folded not long after we published a few issues.
I always thought Lending Intelligence was a bit ahead of its time. It was true that in 2002 vendors were selling asset-agnostic loan origination systems, but the fact is many lenders remained satisfied with their mortgage or card platforms. It was a case of, “if it ain’t broke, don’t fix it.”
Well, it’s broke now. In one of the best blog posts of the year, George Colwell of Core Banking Blog quietly highlights not just the tragedy, but the utter absurdity of the siloed bank in 2010. Colwell deserves the banking equivalent of a Nobel Prize for Peace.
Colwell presents his argument within the context of a bank considering switching its core banking system. He says — most rightly — that a bank cannot switch a core banking system without switching the way it operates.
Most banks equate a core banking system replacement with transformation. These banks tend to think of the replacement of the core systems as the silver bullet that will solve all issues, stop the bleeding of market share, stabilize the existing customer base, and help the bank start to grow again. So what I’m about to share my shock some of you – 80% of what impedes a bank from achieving great results has absolutely nothing to do with the Core Banking System. …The issues that plague most banks, the issues that generated the current status quo are not core banking related. Rather the core banking system of most banks are a result of the status quo, organizational structure, and organizational behavior embedded in the culture of the bank. If a bank is not willing to address these areas first then no matter what systems are selected, the bank will either spend significantly more money and time than they should to implement or worse they will spend time and money to implement a like-for-like system replacement with no transformed business process, no transformed culture and absolutely no differentiation in the market.
Someone give Colwell a hearty pat on the back. Misguided overall direction at a bank is exactly the issue, and I
would suggest that this challenge extends well beyond core banking systems to most types of technology. Anyone who thinks mobile banking, for example, is going to solve the deep-seeded structural problems at some banks can qualify for a free ticket on the loco train. Here’s why the siloed approach is so wrong for a bank:
[S]ilos run separate data stores, separate customer files, separate origination systems, have separate budgets, in some cases separate technology groups, and the list goes on and on. Flattening these offerings allows a bank to provide easier total view of clients, and ensure that enterprise data comes from only one source. It also allows the bank to reduce the total cost of operation through streamlining of systems and processes. These are all things that are obvious to any enterprise architect, but in the context of the bank’s culture the business doesn’t see it the same way, and if unaddressed the enterprise will start to make decisions that are for the good of a silo, not the good of the customer or wider bank.
I call this type of banking vulgar, because it degrades not just the bank, but the consumer. To not have the consumer squarely in mind is to not care about your professional life, your company, or your colleagues.
Ultimately, at some point banks will be forced to abandon “vulgar” banking. Consumer are too demanding and are becoming too sophisticated for banks to ignore the hard reality of how they need to operate. I would urge bankers to embrace this change, but I know better than that. Despite the fact that most readers of Bank Innovation understand Colwell’s call to action, others will claim that this call does not comport with the real world. To those others I offer my sympathies.
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