Sunday, July 26, 2009

Existing banking systems are too old for mobile banking.

If we know, we tend to forget this, and if we are ignorant, we would never believe it: but banking is actually not real time. What you see is not necessarily what is, nor is it what you may get. Listen to what Bill Streeter say in a recent article in the ABA Banking Journal:

"On the other hand, if you define real time as handling any transaction at any channel only once, at which point final posting occurs, then very few U.S. institutions are doing that..... Real time was also the norm for years with savings and loans and credit unions, and still is in some cases, though the movement to check-based transactions changed things for many of these institutions."

The rest of the article is a great read about the state of real-time-ness in banking and how difficult it is to turn existing banks into real time machines. Or to quote from the article: “Changing core systems is not for the faint of heart,”

Which made me think: why do we want to put mobile banking and payment solutions on top of old banking systems? The whole idea of using a mobile phone for banking is that I can do stuff in real-time. I mean, can you imagine having a telephone call in batch? Phones are made (and consumers expect them to be) real-time devices. It is just absolutely crazy to plug a mobile phone into a system that does not work in real-time.

In order to bring the true benefit of mobile banking, we will have to re-define banking from the ground up. The banking systems that should sit underneath mobile banking should be designed in a different (more modern view). If a transaction happens we post a debit and a credit and it is done (simple). If we have to reverse the transaction, we post a credit and a debit. This is not so difficult. This means that mobile banking (in many cases) would initially be a separate system.

Once again, this is not so far-fetched. Banks did it when they launched credit card systems a few decades ago, and it seemed to work pretty well. Why should we not do it with mobile payment systems. Just a thought...


William C. said...

What immediately comes to mind is risk management, relative to emerging markets, in particular in markets where your customer base is of low literacy, and extremely risk sensitive.

But perhaps I misunderstand your point.

ses said...

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