I was bewildered this month to hear so-called experts at a data and technology conference saying that the credit industry is doomed to lag 15 or 20 years behind modern advances in technology. If this were true, mortgage lenders would still be getting their information through Ceefax and making calculations on Lotus notes. The idea is preposterous.
Consider what the industry has already achieved. Customers can now make almost instantaneous purchasing decisions through comparison websites, data requests can be completed entirely online and what’s more, all this software is stable and can be used securely. These are practical innovations that have allowed companies to deliver a flexible service and made it possible for customers to make informed decisions about the services available to them.
Not all advances in technology are so useful. I can remember armies of smug parents 10 years ago delighting in their present-buying wisdom as children everywhere obsessed over the pixellated dinosaurs on their Tamagotchis. Where are they now?
It turns out that children quickly decided that having a computerised pet in your pocket was neither as cool nor as fun as conkers, Xbox Live or texting one’s way through mealtimes. Certainly less fun than conkers was the tilting train in the 1980s, which was heralded as the finest rolling stock in the world, until we found out to our cost that it was unreliable.
Some innovations look great when they’re new, but turn out to be difficult to live with. And living with mortgage companies is something that almost everyone has to do.
In finance, cloud computing will allow companies to avoid capital expenditure on large, dedicated physical servers by renting usage from a third-party provider
So what does the technology future hold for the financial services industry? For one thing, massive savings on the cost of computing resources through cloud computing technology. I’ve been criticised recently for seeming to dismiss cloud computing, so let me take the opportunity to set the record straight.
I think cloud computing will revolutionise the way IT resources are provided during the next five years. Cloud computing is in effect a way of using computation power as a basic utility. It is a mechanism by which computing power can be used as a tradable commodity akin to electricity.
It uses virtualisation to separate software from hardware, allowing many programmes to run on any machine and indeed to switch between them. Although hardware stays in one place, virtual machines consuming processing power can jump around, even between distant data centres. Virtualisation has also given rise to big cloud providers, which offer computing power on demand.
The possibilities are hugely exciting. In finance, cloud computing will allow companies to avoid capital expenditure on large, dedicated physical servers by renting usage from a third-party provider. They can get much more computing power for much less outlay.
Other benefits of this approach, which are particularly useful for smaller companies, are low barriers to entry, shared infrastructure and costs, and low overheads.
Sharing perishable and intangible computing power among multiple tenants will improve utilisation rates, as servers will have less idle time, reducing costs significantly while increasing the pace of application development. Cloud computing will be a major spur toward further software developments as IT funds can be used to put a greater emphasis on refining systems and creating innovative applications.
But we aren’t there yet and I’m not sure all the questions about possible problem areas such as data security have been answered. Financial services firms can’t afford their metaphorical trains to break down.
Technology in financial services is all about finding stable and cost-effective mechanisms for transferring and manipulating data and most companies have found that doing this has saved them money and impressed their customers.
So what are the problems that have led to the suggestion that financial services companies are technological philistines? Some commentators have suggested that a major problem from lenders’ point of view is that too many are stuck with legacy systems that are too expensive to fix.
The problem with legacy systems is that they need regular manual workarounds, which are expensive and labour-intensive. If you use legacy systems, there is certainly the possibility of not only falling behind current technology, but doing so expensively.
It doesn’t have to be hugely expensive to fix or replace these systems. More companies are becoming aware of the savings to be made by renting capacity. This practice is becoming increasingly common as companies rent not only server space, but also software systems.
Cloud computing means that companies’ server reliability issues can be dealt with efficiently at a lower price, with the added bonus that advances in systems can be swiftly incorporated into working practice.
These advances don’t sound as exciting as annihilating anti-matter 100 metres beneath Geneva, but in the financial services industry technology needs to be reliable and efficient, rather than just new and exciting.
In the last five years the industry has created stable online comparison systems and has made it possible to complete a mortgage application on your sofa. In future, computing power will become markedly more affordable to businesses.
Successful firms must seek to help clients differentiate their services from competitors through stability, reliability and ease of use. Companies using outdated technology face excessive costs as they spend large sums on manual repair operations and lose productivity among their workforce through inefficient antiquated systems.
Moreover, when systems are customer-facing, companies that build a reputation for poor reliability or security will begin to suffer. There can be no doubt that any firm that fails to take technology seriously loses its competitive advantage because technology sits at the heart of the financial services industry.
Whoever suggested that we’re behind the times must think that we’ll also be tucking into spam fritters and blancmange come dinnertime.