Hallucinating Banks Believe They Are Technology Start-Ups

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Thanks and hat-tip to reader Maura G (aka ReaderofTeaLeaves) for making us aware of this latest piece of finance industry nonsense. It comes from bank pom-pom wavers and general all round flim-flam merchant Tearsheet. While it is always entertaining and comic relief to include these kinds of industry echo-chamber delusions in our daily roundup of links, this one on bank technology caught my eye. It warrants unpacking in a little more detail.

The original Tearsheet story is here and the topic is how banks, according to the article, are getting “creative”, “innovative” and “design-led” in both new products and also how they work, culturally, in their internal operations and management. But in the process, this inadvertently highlights several industry issues. It’s even more revealing when financial services rha-rha’ing shows how the banks are not only bad actors, but are so delusional in their group-think and surrounded by paid shills who can’t or won’t provide a challenge to the skewed logic.

Starting with a (mercifully) brief quote from the Tearsheet piece:

Despite all the hype around transformative technologies or the fact that consumers aren’t actually using any “fintech”, the dinosaurs of the financial world are changing from the inside out, putting the customer experience before their business — and design thinking is at the forefront of that.

It’s optimistic, but also just a new way (for banks) of doing business. They’ve realized they no longer dictate how they do business and what they produce; their customers do. In a digital world filled with choice, banks’ customers need choice, empathy and ease of use designed into every interaction they have with the bank and they need to deliver on that quickly, before their competitors, which now include retailers and other non-banks.

The first paragraph states what may be obvious to those outside the finance industry bubble. Namely that users of financial services mostly do not want or need so-called innovative financial products or any new ways of using finance in their lives. Rather, they want banks to provide simple, easy-to-understand basic financial products that work. According to the copious data available from the Consumer Financial Protection Bureau which I’ve analysed, retail bank customers’ top five sources of complaint are:

  1. Fees.
  2. Poor customer service.
  3. Unpaid checks or other bounced payments.
  4. “Gotcha’s” hidden in product Terms and Conditions small print.
  5. Bank errors (which were either not corrected, took a lot of effort to get corrected or the corrections caused other knock-on issues).

I’ve worked in finance for nearly 30 years. The very first list I ever saw for complaints looked exactly the same as this.

And this begs an obvious question: if customers complain about how banks let them down, why are the banks not concentrating on what customers are telling them is wrong with the products and services the banks provide already – rather than spending time and money on creating new supposedly innovative ones? The answer is, of course, that it generates profits for the banks to do things which customers find annoying (high fees, obscure product features and even bank errors which cause the customer to lose and the bank to win). Or else it costs money, such as to train staff and then retain that knowledge in their workforces or to have sufficient numbers of staff available in the first place, to fix the problem.

Customers, even if we are supposed to be “In a digital world filled with choice” don’t need “choice, empathy and ease of use designed into every interaction they have with the bank“. We want to not be ripped off and for the banks to act competently in our dealings with them.

It is too much of a stretch to expect that the banks, unprompted or without being cajoled by regulators, will address structural issues around their business culture, executive conduct and outlandish profitability ratio expectations. However, we should expect continued wailing and gnashing of teeth from the banks about “innovation” and the need to be “competitive” in “the marketplace”. The latter is a complete and immediately disprovable canard though, because the top 5 banks control nearly half of the market.

So why, then, do the banks keep going, broken-record like, with their claims about the need to innovate?

For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity. Banks are large bureaucracies with fiefdoms, turf wars, massive egos and driven by the need – in the cause of maximising shareholder value, the alter upon which many business have to sacrifice themselves – to implement the lowest cost solutions.

It is not uncommon for the graduates and those recruited from the top performers in science and technology to join banks. They are lured by high pay and the promise of joining the Masters of the Universe. Sadly, they often find that the reality is form-filling, battles with nickel-and-diming accountants and internecine warfare. Boredom, for want of a better word, drives many of them to seek out vanity projects or resume-burnishing novelties such as fintech.

Lining up alongside a desire to do anything to relieve the monotony push, bank C-level leaderships then adds a pull all of their own. A preoccupation with trying to escape regulatory and legal constraints. For evidence, let’s return to the Tearsheet post:

There is no greater trojan horse to change an organization than design thinking, said Stephen Gates, head of Citi Design. “Especially with something where there are lawyers, regulators… Part of what we had to do was change thinking, not behavior. If it’s new behavior on old thinking, we didn’t really change anything.”

(emphasis mine)

Superficially, this doesn’t sound especially problematic. It could even be construed as plodding old legacy businesses like banks trying to adapt themselves to the modern knowledge economy era. Such superficial analysis would be wrong. Firstly, repeating a cliché of innovation and relying on invisible hands that ceaselessly drive any and all businesses to discard everything they’ve done historically and start afresh is just that, clichéd.

The notion that everything a business has learned and any intellectual property it possesses has suddenly, somehow, been rendered obsolete by some vague notion of an immense technological development is repeated so often that it’s become part of our prevailing culture. But aside from a very small number of breakout products, such as the personal computer, the internet and the smartphone, most products you buy or services you use are only ever incremental improvements on what has preceded them.

The same applies to banking. Without getting too bogged down in the technicalities, a bank’s only functions are to intermediate maturities and interest rates on deposits taken and loans made, plus to offer some money transmission services. Within financial services, the only two true innovations in the past 50 years or more which stand up to a scrutinizing of that term are the ATM and the credit card. Changes to how customers are serviced such as the migration from the branch channel to the telephone or the internet have shifted the “where” and the “how” banks interact with their customers, but not the “what” of those interactions.

The line I highlighted in the Tearsheet article gave the game away. The participants who’s thinking purportedly needs to change are not the accountants picking through expense reports stripping out costs (which usually means reducing headcount). Nor is it the thinking of executives to reduce their outsized compensation packages. Nor is it in boards who will only look at changes through the lens of a 5-year business case which must pay back within the shortest of short-term timeframes and satisfy outlandish Return on Investment (ROI) targets. These ways of thinking have been with us for at least 20 years or more, but apparently aren’t in any danger of approaching a sell-by date.

No, the thinking that needs to change is that of “lawyers, regulators…” who are being exhorted to change to embrace the latest design trends and technological innovations. But regulators and lawyers are not and cannot be creative types who spend their time considering new colors for logos and typefaces for websites. Their jobs are to enforce or provide advice and guidance on the laws governing a corporation’s products and services or to interpret regulatory frameworks which have been enacted by regulators and lawmakers. Creativity, design thinking and behavior doesn’t come into it. Just because a bank wants to label a change as being innovative doesn’t — or shouldn’t — lessen the obligations on a bank’s legal team or the regulators to comply with laws or existing regulations.

Gutting regulatory compliance and trying to side-step legal obligations aren’t “design thinking”. They’re the same connivances which would have killed the entire banking industry 10 years ago, had we not all been coerced into bailing it out.

You can’t blame the banks for trying it on. They are what they are and will continue to be so until they are forced to change. You can, however, fairly and squarely blame regulators and lawmakers for not pouring a lot of cold water on this craving for technological fervour. Making the banks tackle their long-standing issues as evident in the CFPB’s complaint data before they can try anything fancy like fintech would be a start.

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  1. timotheus

    A question from a total outsider: if modern banking is tedious and frustrating, could this be related to the (often-mentioned here) move away from servicing credit needs to algorithm-driven mechanics? If I think of the banker who sat in a front window of his bank on the main square of my home town, he was surely engaged in figuring out who was mortgage-worthy, what businesses might be good bets for loans, etc. It might have had its routine aspects, but it was engaged, integrated into the town’s life, and required complex skills including how to say no to the guy who would sit next to your family at church. Perhaps banking has killed off its most appealing aspects and left its minions filthy rich but with nothing stimulating to do.

    1. Clive Post author

      Automated decisioning has removed a lot of the skill and judgement for banks’ credit officers. It has also removed a lot of credit officers! There’s virtually no discretion available in retail credit policy and no-one empowered to override standard-model largely FICO derived lending decisions. As you say, a lot of local market knowledge helped banks and their lending teams make credit decisioning much more flexible in the past.

      I was though more referring here to the technology side of banks — they are the antithesis of what many attracted to enter the sector think it will be like. There’s so many internal bureaucracy hurdles, complexity constraints and cost-focussed management to work with, the people who unwisely buy into the hype the recruitment consultants proffer end up frustrated and disappointed. It is almost inevitable they go looking for glamour projects — however unworkable they may be like a lot of fintech — to try to latch onto.

      1. Jim A

        Of course the bad mortgages that were a big part of the RE bubble were approved by poorly thought out algorithms. As were the ratings on the bonds created from them. Algorithms are really only as good as the data that they are based on and the knowledge of the people who write them. And when it is profitable in the short term to ignore the long term, rest assured that somebody will figure out a way to make the algorithms do that.

            1. Tinky

              Probably meant “MERS”, aka “Mortgage Electronic Registration Systems, Inc.”

              Though “Mears” is an anagram of “reams”, so…

      2. vlade


        That said, it’s an interesting world out there, as banks do vary from country to country (having had experience in a number of them, on both sides of the fence).

        Say in NZ, I had a bank manager, and he had some (reasonably) ability to vary the interest rate on my mortgage when I came asking. He could also offer special rates on deposits (over a certain amount).

        In the UK, I also had a bank manager. Who wasn’t even told by the bank’s credit card department my CC application was rejected as I wasn’t in the country for long enough, so he kep submitting it in the belief it got lost.. To modify an interest rate on anything was impossible. And, most recently it’s even impossible to override the automated lending decision. Hurrah for automation!

        It fascinates me how fascinated banks are with big data now. When banks were the first and ultimate big data company – just the data processors were people, not machines. Then they used the machines to streamline processes, seemingly w/o realisation that streamlining processes gets you commoditised (as its eminently copiable). So now banks are struggling to avoid a commoditization while working very very hard at it.

      3. programmer3

        On the flipside, removing personal discretion from credit judgement calls also makes the process more fair – less “redlining,” and no denying credit based on personal prejudices (or approving loans for friends and family)

        1. Clive Post author

          That’s a valid point — it was too easy for a friends-and-family bias and even bribery to creep in to human decisions before model-based credit decisions became the norm. The happy-medium was when predefined scoring criteria were used as the foundation for a loan but you could appeal to head/regional offices for an over-ride if you had good extenuating circumstances or other reliable evidence to back you up.

          The latter option is now no longer available, for the most part.

        2. Doctor Duck

          Your nick is ‘programmer’ and you think an algorithm couldn’t be written to include a few “red lines”? Hmmm…

        3. cocomaan

          I agree with Doctor Duck: the idea that because it’s programmed, it’s a better bureaucracy has really turned out to be a false promise. Just look at the financial crisis and reverse redlining (ie, predatory loans) was used as a financial weapon against minorities.

          Aside from racial injustices, it’s pretty obvious that “the programming” is there to reify existing class divisions. There’s no bureaucratic computer program that seeks to free people from the crushing bonds of class. Max Weber would have a field day. Bureaucratic technology ensures that there’s no charisma appearing in the system.

          We’ve created machines in our image, with all our prejudices and all of our assumptions in place, preserved in silicon forever.

        4. Mel

          Process more objective. The red lines are the ones written into the algorithms. I recall a Ted Rall post about Dayton OH that described them demolishing empty historic buildings to get their occupancy rate up. Banks algos wouldn’t grand mortgage funds in areas with high un-occupancy rates. This is death to Jane Jacobs’ recommended city environment, where a range of available rents, low-to-high, nourished every kind of development. A new-scale developer, blogging as Granola Shotgun has a lot to say about this — the linked posts and a lot before.

        5. David Barrera

          This reminds me of the statistical gender discrimination algorithms used in the past. Some subindustries considered cost efficient to screen out women for employment because of the probability of maternity leave-apparently there were other “average gender biased considerations too”-. This excluded first, women who did not want to have any kids, and secondly-and independently from that- diverse, able, capable and willing labor participants. Have you ever asked yourself why some jobs which would not require a college degree by any stretch of the imagination screen out electronically the non-college degree applicants? “On average”, a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset. This way the enterprise leaves out that which the average does not include and which in certain cases could bring terribly needed different approaches to a job….Yet, no one ever said enterprises were democratic, truly inclusive and open to certain changes.
          In regards to the financial theme, programmer 3 commented “removing personal discretion…approving loans from friends and family”. Anyone who worked for a lending company in the past knows it was a matter of policy that no employee could make loans to relatives or friends. Remember that personal discretion-as opposed to personal arbitrariness-acts within written and unwritten guidelines and rules too. Also, what your stand alone algorithmic dictatorship does to how delinquencies are currently managed by the mortgage industry it just simply has no name.

          1. HotFlash

            “On average”, a college degree is an order acceptance and an endurance performance index within that order,thus, it is a cost efficient recruiting tool to exclude online non degree applicants from the very outset


            These days, a college degree is also a prime indicator of life-controlling debt.

        6. Thuto

          Not in South Africa, where race is big factor in determining the risk profile of the client. As you can probably guess, the machines have been programmed to grant punitive interest rates to black people…

    1. Clive Post author

      That is the worst example of this kind of thing I’ve ever seen! And we’ve seen plenty here… it deserves some kind of award, in the same vein as the anti-Academy Award “Golden Raspberries” does for motion pictures. It might, Clive says hoping, be some sort of parody. Unfortunately, I think it is for real.

    2. Arizona Slim

      And it’s all too typical of the bovine manure that gets posted on LinkedIn Pulse. Consider the source.

    3. Stephen Gardner

      But was the gin in the negroni curated by a hipster in tight pants and an ironic mustache? If not I just am not interested. LOL.

    4. John Wright

      To show my disconnect from the modern world, the linkedin article closes with “PI-shaped people”

      I had to search for that, first suspecting it meant a person who levers their abilities by 3.14159xxxx

      From what I found, there are T-shaped, PI-shaped and Comb-shaped people and the symbol’s shape is a sort of expertise indicator.

      A T-shaped person has one area of expertise under their generalist/broad knowledge top hat, a PI shaped person has TWO areas of expertise under their generalist/ broad knowledge top, while a comb-shaped person has MULTIPLE expertise areas under their generalist/broad knowledge top.

      Do people make a living coming up with this stuff?

      1. NotTimothyGeithner

        “Do people make a living coming up with this stuff?”

        Delta shaped people do.

    5. cocomaan

      Is this satire? I know if I have to ask that I’m the negative negroni, but this can’t be real.

  2. Bill Smith

    From the list, the first one, fees, aren’t going away given that the interest margins are so narrow.

    I’ve seen a number of banks partner with one of the non bank fintech’s (even pre IPO fintech’s) to make the bank fintech savvy. To get their computer driven credit system? It will take a while to see how that works out.

  3. notabanker

    The agile design led stuff reminds me a lot of the TQM programs I went through in the 80’s / 90’s. Independent thinking within the group, commitment to the group to do the work, rolled out in large scale. We’re even moving away from the cube farm to the factory floor, with foosball, xbox’s and (sometimes free) coffee for all.

    Likewise, the whole spinoff/startup thing was in vogue back in the early 90’s when banks were faced with e-commerce, this is just the 2017 version.

    Legacy is, and in some ways should be, their issue. Systems of record for fin transactions should have a long shelf life. With that comes people, process, costs and profits, all major drags on change. They won’t be able to have it both ways.

    1. fajensen

      Me thinks that this kind of hype reaching banks and even politicians (the Danish government has created a “Disruption-council”) is a sign that things are not going so well inside the engine room on the mother ship of the technopocalypse. Governments and Banks are kinda the very last people on earth to discover anything. At All. When they are suddenly “getting the vibe” whatever “the vibe” was about, is absolutely over :).

      I think that Silicon Valley is leaking flim-flam merchants and “evangelists” because the money is getting thinner, the sell is becoming harder, easy consulting opportunities are diminishing and fewer are being procured by the real operators (Apple, Google, Facebook, CISCO ….) to provide their stunning insights and bold visions for the future. The accountants are ascending, ROI is being scrutinised, exponential growth is levelling off so now there is time to do that.

      The visionaries and evangelists still like to be paid (and the travel), so instead of canvassing Silicon Valley harder with work better suited to the actual future, they spread out and seek new markets for the same old stuff, kinda like what happened when Monsanto poured PCB into everything plasticky when the market for oil-filled capacitors was tapped out.

      I’d say, in only one-two years, there will be good “SPLAT!” in the .unicorn market.

      1. HotFlash

        Thanks, fajensen, I think you are quite right. Totally looking forward to the Big Splat!

  4. SoCal Rhino

    Keeping score from recent battles among local demi deities, currently turf beats innovation, and in a stunning reversal that may not last, cost cutting prevailed over turf. These battlefields rather than the PowerPoint campaigns being where I observe corporate culture.

  5. vlade

    I’d add one innovation to the list though – smart sweep systems. That is, something that optimises the costs of an account/accounts for a client. That could be just sweeps between saving/checking accounts (not talking US here), to queuing transactions as to minimize costs etc.

    But the banks that implemented this found very quickly that it led to a significant drop in client profitability (namely overdraft fees collapsed, interest paid went up), so quietly canned it.

    But the story doesnt’ end there – the smart ones figured out that optimization doesn’t care whether you do max or min, so used the technology to optimise the profit from the client – hence things like applying debits before credits (to take you into overdraft) etc. Forunately, this “innovation” went out too, but it took regulators to get it done.

    1. Clive Post author

      Yes indeedey. My TBTF stopped allowing new sweeps / pooling arrangements which was a great service for customers who wanted to keep money on deposit or even in a market-linked account but didn’t want to have to worry about constantly keeping an eye on what was in their current (checking) account to make sure they weren’t going to go overdrawn.

      Simple to understand, easy to set up for both customers and the bank, worked flawlessly because it was just a nightly batch job with easy-peasy logic — what was there not to like? Erm… unfortunately for the customers, the hit on bank profitability.

  6. flora

    Gaaa. Let me fix a bit of the Tearsheet intro:
    “In a digital world filled with choice, banks’ customers need choice, empathy and ease of use need sound information, good customer service and accurate accounting designed into every interaction they have with the bank.”

    I use my bank as a utility, not as an exciting “experience.”

    Great post.

  7. cocomaan

    Hey Clive, loved this piece. This really caught my attention:

    For one thing, which may not be obvious to those outside the industry, working in finance is usually incredibly boring, frustrating, tedious and slow. While the outsized pay can and does attract intelligent and talented people, some of whom are quite creative, it is just about the worst place for those sorts of people to work. Systems and operations are convoluted and difficult to change because of their complexity.

    I’ve worked in higher education and you see the same thing going on right now. Education, to me, is a social process of imparting knowledge. Simple solutions to perennial problems in education are: (1)Smaller class sizes (2) Better pay/benefits for teachers (3) Support systems for parents to help them help their children do well.

    But what happens in education? Well the same thing you mention above: technology is thrown at these kids a mile a minute. Suddenly, the solution to problems in the classroom is monitoring grades through centralized systems with their databanks on the cloud, where student’s every move is considered and they are flagged technologically for not living up to expectations. There’s a huge complex of technological charlatan/consultants infesting higher and primary education at the moment.

    Before long, the “boring” solutions are impossible. Why? As you say above, the technology becomes ensnared in itself, taking on its own inertia. Before you know it, you can’t afford to change anything for the better because you have several legacy systems running simultaneously and weighing down budgets.

    1. Clive

      It takes a lot to shock me, nowadays, but I was genuinely taken aback when an educator friend of mine (in our equivalent of K-12) told me she’d been given a tablet with — from what I could tell, I didn’t see it in action — proprietary software used by the chain academy (charter school as it would be called in the US) where she works which prompted her during lessons to capture certain metrics (numbers of students voluntarily putting their hands up when asked certain previously defined questions in class, time spent on a particular PowerPoint slide — a PowerPoint slide I thought for cryin’ out loud — which had been similarly predefined and “tagged for follow up” versus the estimated “best practice” time slot for this classroom content, a teacher-subjective “score” for student “engagement” and similar).

      As a bit of a data nerd, I was appalled not just by the intrusion into territory where, surely, experienced educators knew best what to do, how to pace lessons, how to make best use of classroom time and so on but — more importantly — by the risible quality of the data being gathered. It was what I call pseudo facts, things which sound like they might be telling you something worth knowing but don’t actually prove anything.

      It all reminded me of those animal behaviour studies, the ones which come to conclusions like “when a cat comes towards you and it has its tail upright, it is engaged with you and wants you to interact with it”. Sufficed to say when I tried out the theories on my mother-in-law’s cat, I got a scratched top of my hand for my trouble.

      1. cocomaan

        Love the cat analogy. Glad, or rather not glad, to know that it’s reached across the pond.

        If you really want to get disgusted, look up “Learning Analytics”. Venture capital is streaming into these startups that are aggressively data mining students. None of it ever passes through an ethics board and much of it violates FERPA, but the Department of Education seems to shrug their collective shoulders about it. Probably because many Dept of Ed personnel end up at those companies as advisors.

        And don’t get me started on those tablets. Google hands out Chromebooks and swears up and down that they don’t collect usage data.

        1. flora

          an aside, and off topic (apologies):

          Well, see, arithmetic and maths and English and composition and Physics and Chemistry change so often that using paper textbooks would leave paper textbook students hopelessly behind students using tablets. OK, tablets cost on the order of 3 times what paper textbooks cost for the same usable time-span. But, hey! It’s new! It’s now! It’s happening! (And also, too, rents.) /s

          1. Clive Post author

            Yeah, it’s not like those old fashioned printed text books wouldn’t go out of date (unless there was a lot of needless curriculum churn) and not have a useable economic life, even allowing for students’ not-too-careful handling, of 5 to 10 years or so. Oh… wait a minute…


    Example of what I like to the call the “If you want faster-than-light-speed travel tomorrow, you have to let us commit fraud today” argument. Question is, whose eyes are they trying to pull the wool over? Investors to be wooed by web 2.0 jibberish? The top brass, to justify their continued employment and/or promotions? The public, as a horse and pony show to distract us from the bezzle? Regulators, hoping that the innovation and tech talk will intimidate them from paying attention to the man behind the curtain?

  9. Some Guy

    Good post Clive, as someone who’s been in banking for a few decades now, the current moment is very reminiscent of the late 90’s, even down to some of the details.

    Was on a call with some senior folks a while back rhapsodizing about how cutting edge neural network models would revolutionize our business, and I turned to a colleague who also been around the block and said, ‘yeah we tried all that in the 90’s, it didn’t really make a difference’ (vs. the standard approach of using multiple regression for credit scoring), and he said to me, ‘yeah we tried that at my bank too, same result’

    One aspect you didn’t cover, that I think may be more important than fighting off regulations (although that plays a role, I’m sure) is that I think execs are looking to get a piece of the silicon valley, techland infinite money-pile. They see Tesla worth more than Ford and they dream of where their stock price (and their stock options!) might go if they were thought of as tech companies instead of boring old banks.

    And part of it is fear. They are afraid of being the next Sears or local taxi company or whoever getting disrupted by the infinite silicon valley money-pile, either by the startups that can burn billions of dollars buying market share or by the big players who can leverage their entrenched monopoly positions in their core markets to spend billions trying to take over any market they feel like.

    1. DH

      Wells Fargo tried that where they made account creation essentially click-bait for their workers. It worked for a while until it didn’t. It turned out that their account creation approach was just a retread of the 1999 dot.com model, so they really were a tech start-up after all.

  10. Altandmain

    The issue is that the banks have no incentive to address the 5 issues that you raised. They are a rent seeking cartel that does not care about the well being of the general populace at all.

    They certainly are not tech start-ups. I get the impression that most people think that tech startups are God, but in reality there are many bad start-ups too.

    Basically, their money is made screwing the general public over at this point. That’s sad to say, but it is not far from the truth. What we need is a public bank and/or larger credit unions that can offer all the financial services of a big bank.

  11. Colonel Smithers

    Thank you for this post and reader contributions.

    Many of the examples cited apply (equally) to my former employer, Barclays. Having been shafted by shysters from Wall Street, the bank jumped into the frying pan of (pseudo-)techies (often from a particular part of the world). My current employer, the German twin of Barclays, is just the same as the blue eagle.

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