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City IT: Banking system is 'pants'

John Riley
The structure of the banking sector is riddled with expensive, slow, error-prone and monopolistic processes and is ripe for major technology-driven change.

That was the central message in the CityIT conference keynote speech by Tim Jones, former chief executive of NatWest Retail.

The collapse of transaction costs and the decreasing importance of geography will force technology innovations, he said.

"The dotcom bust is a distraction, and we are about to see a five-year period of zooming off," Jones added.

"The economies are powerful - be ready," he warned.
Jones, who helped to introduce the Switch system in the 1980s and who developed Mondex digital cash in the 1990s, is now chief executive of Purseus, a new multi-currency interbank clearing system aimed at the retail and commercial markets.

Jones said a combination of digital phone technology and digital money will bring about a banking revolution, when processing power and bandwidth are able to give consumers the speed they need.

"It takes 100 milliseconds to turn a paper page," he explained. "If anything electronic takes longer than that, it's bust."

Parts of the banking infrastructure are dynamic, Jones said, giving the example of the global reach of automatic teller machines and point of sale technology.

There are also many channels to banking, customers can get a loan in five minutes, and it is now possible to get instant insurance cover, he added.

But Jones also derided core banking infrastructure as "pants".

"Interbank settlement is a mess and ridiculously slow. Money should flow in seconds not days," he said. "There is absolutely no excuse for transfers to take anything more than three seconds.

"The fundamentals of banking are being ignored," Jones added. "Too much of the structure of banking is monopolistic, which makes it prone to abuse.

"Competition is good," he said. "It drives innovation."

Why Mondex failed to take off
Mondex, the electronic purse, failed because it was the wrong path to market, said Tim Jones, former chief executive of NatWest Retail, who was responsible for its introduction in the UK nearly 10 years ago.

Giving a keynote speech at CityIT, Jones said a fundamental mistake had been to attempt to fulfill the demand for ubiquity of service by focusing on one town, Swindon. In the event it was a promise that could not be fulfilled, he said.

"If I had my time again I would concentrate on broad vending applications. For example, enabling consumers to buy chocolate from Cadburys machines on the Underground, or for parking in NCP car parks," he said. "Vending is the most challenging area for digital cash cards."

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