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Applying moral philosophy to banking might not be the wisest of moves. The Marxists in the Labour Party would be insisting that the state must do it all, while the Aquinas wing of Christianity would possibly say the usurers will burn in Hell for all eternity. However, there is an interesting part of Marx that we can apply – the mode of production determines social relations. Further, that when the mode changes, so should the relations.
In other words, as TSB’s latest travails show, it might be time to put the computing industry in charge of retail banking. Or, to be less ambitious, perhaps, to actually recognise UK retail banking for what it is these days – a branch of the computing and tech industries, not something really to be run by bankers any more.
TSB needed to change its computing systems – that much was obvious, since it was still running on legacy systems from its former parent, Lloyds Bank. But that’s part of how the entire banking industry runs, isn’t it? On a series of ageing legacy systems lashed together with sealing wax and spit. Varied mergers over the years have left incompatible systems trying to talk to each other and almost no one has a single and unified system covering all issues and market areas.
In one economic view, a retail bank these days is a computer system. Sure, it needs to attract deposits, it will make loans. But these are pretty much entirely decided upon by algorithms these days – that personal touch only remains in corporate and investment banking. We don’t get our mortgage because we know the bank manager any more, do we? And after those decisions, the rest of the set-up really is just a computer system handling payments and transactions.
Without the computing, there just isn’t any “there” there – which means we should be changing how we view banks. Banking, in the sense of measuring and using experience to decide on credit ratings, is not what is being done any more. Therefore, those people trained in such things – the bankers – perhaps shouldn’t be the ones in charge any more. We’ve changed the mode of production to the IT department being vital – so it should be the IT people running the organisation.
We can also call into evidence a very much less controversial economic concept – one borrowed from engineering – that of path dependency. What we do next, what we can do, depends in part on what was done in the past. Travellers looking at, say, the Russian or Portuguese ATM systems will note that they are very much more capable than those in the UK.
That is simply because those countries came to the technology later, installing largely in the 1990s – as opposed to the British system, which has to be backwards compatible with machines first installed in the 1960s. Thus varied bill-paying systems, even international transfers, can be done on those newer systems, but perhaps not ours.
We can write the same story in much larger letters, too. Mobile telephony came of age when the UK already had a nation-spanning fixed-line phone system. It came to places like India long before they had such infrastructure – India never will have an all-household-encompassing wired telephone system as a result. They have simply leapfrogged that technology through the trick of being too poor to fully employ the older one.
It is highly likely that many currently poor countries will never have a fibre-optic or other fixed-link broadband system either, because mobile internet is going to be cheaper to deploy. And it is becoming so more quickly than anyone will invest in cabling.
British banking is not about telephone lines, of course, but that path dependency is still vital to understanding how it works. By the time the mergers of the 1960s built the national banks, most were computerised to some level. Subsequent gyrations in ownership and combination have meant that most of the extant players have myriad systems, not all of which speak to each other.
I have a mortgage sitting on a Unisys system somewhere in the bowels of a conglomerate, with that system having changed hands at least three times since issuance. And the only way to interrogate it is to phone a very polite lad in one specific office somewhere. It’s simply not connected or talking to the other systems of the same nameplate these days.
There is also no explanation for the continued existence of Cobol, other than there are still vital systems under the gaffer tape and general bodgery using that language.
The problem here is that everyone in the computing industry knows what needs to happen – a general and proper migration to one single and integrated system for an organisation. Sure, it’s expensive, especially when it is done right. Although, as TSB is showing, that is nowhere near as expensive as doing it wrong. The reason it doesn’t happen is because we still have the bankers – those with the archaic skills – running the system itself.
Part of that banking mindset says that computing is a cost to the organisation – which, in an accounting sense, it clearly is. But there is a very good argument to be made that, in an economic sense, it isn’t. And it’s the economic case and definition that matters here.
We don’t, for example, run companies to make accounting profits, but to make economic ones – those above the general level of profit. We want “excess” profits – those above the cost of capital – something that the British retail banking system doesn’t generally achieve. In this economic sense, computing is the organisation – it is the bank.
Therefore, as Marx pointed out, since we have changed the mode of production to it being bits and bytes that matter, not cash, we should move the organisation over to have the people who know the correct bits and bytes, running it. As far as retail banking is concerned – wholesale and the City still being different – the financial revolution we want is for banking to be seen as what it is – an arm of the applied computing industry. And run and managed as such.