By Robert B. K. Dewar
Robert Dewar is a professor of computer science at New York University, and president of AdaCore, a company that specializes in providing tools for building reliable software (www.adacore.com).
As we all know, modern banking depends on complex software. Just as we entrust our lives to software when we board a plane, we trust our money to software when we do business with any bank today or when we invest in the stock market. So how are we doing? On planes, pretty well. No one has ever died from a software bug on a commercial airline as far as we know. With banks, not so well! Recently we have seen major problems. Notable among these are the NatWest meltdown that left a very large number of customers without access to their accounts, and the trading software malfunction that caused a major mess on the market, and cost the company half a billion dollars in half an hour. We can read examples of such happenings every week, and of course we know that banks are not eager to disclose problems, so undoubtedly there are major behind-the-scenes problems that we don’t know about, but whenever banks lose money, it is eventually the customers who pay.
What is remarkable about these banking disasters is the tendency to dismiss them as “glitches”. For example we read in The Telegraph: “Up to 12 million NatWest and Royal Bank of Scotland customers are still unable to pay bills or move money after a computer glitch left their accounts frozen.” Now we put the word “glitch” in quotes in the title for a reason. What does this word mean to you? Well a typical dictionary definition (this one is from www.thefreedictionary.com): “A minor malfunction, mishap, or technical problem”. In short the sort of minor mistake that anyone could make any time, and which has an air of inevitability about it. After all who could prevent the occasional glitch? The use of the word is a way of disclaiming responsibility. At least one online dictionary notices what is going on with this word. dictionary.reference.com has a second meaning: “Computers: any error, malfunction, or problem”. Note that the “minor” has disappeared as a qualifier. I certainly bet that if I had been one of those NatWest customers, I would not have been willing to see my serious situation dismissed as minor!
So why the difference between banks and planes? And what is to be done about it? Is banking software somehow much more complex than avionics software? Definitely not! Is there some fundamental difference between software requirements for planes and banks? Not that I can see! The difference is simply one of due care and expectations. On planes, we are very aware of how critical the software is, and we have developed technologies that come very close to guaranteeing freedom of serious errors in avionics software. These include rigorous development procedures, and the use of standards such as DO-178B, to which all avionics software must conform, to help guarantee reliability. We don’t make an absolute claim of 100% perfect software. Even when using such procedures, and there have been examples of bugs found, but for sure software is not the weak link in avionic safety. Banks, on the other hand, are developing software in secret using the same kind of lax procedures that bring software to your PC that crashes frequently. They are far too happy to dismiss such mishaps as glitches, fix them as quickly as possible, and hope that they can get away without causing too much mayhem!
Could we and should we expect more? To me the answer is a resounding yes! When Tesco discovers that it has been selling tainted meat to customers, it’s a major news story and the repercussions are going to be heard for a long time. But Tesco certainly does not attempt to dismiss this as a glitch. But when a banking software error causes major mayhem, we are much too ready to accept this kind of error as inevitable. Why can’t we demand that our banks exercise the same kind of care in writing software that we expect of aircraft manufacture? The technologies, in the form of more reliable programming languages, more reliable procedures, rigorous testing requirements, use of mathematical proof techniques, formalised specification etc. are well known. Furthermore, given the huge cost of bank software failing either because of plain bugs, or vulnerabilities to hackers bent on evil, it is probably less expensive to do things right?
So, why does the current situation continue? Partly it’s just what people are used to. Our students in universities are not trained in the techniques and tools needed for reliable software. Let’s just take one technical example that’s easy to understand. When you are testing software, it’s obviously a good idea to make sure that every line of code has been tested at least once. Furthermore, if you have a test of the form:
if Credit > 0 then Record_Credit; else Send_Bill; end if;
then it is obviously a good idea to test both possibilities. This is called coverage testing, and is a very standard technique that is required for all avionics code development. A few years ago, teaching a graduate course in programming languages at New York University, I asked my students, most of whom were professional programmers, many working at banks, “How many of you have used coverage testing in your work?” The answer: one out of about eighty students! And this is just an elementary first step in improving reliability of code. The infamous “long-line” AT&T bug which took out all long distance telephone service for 7 minutes (back in 1990 when we expected telephones to be reliable) was due to some code that had never been executed. If you google for “List of Software Bugs”, you will find a Wikipedia article full of similar events.
Another reason, really we should say excuse, that is sometimes given is that in banking, requirements change too rapidly to make it practical to test software and make it reliable. In the wake of the trading glitch we mentioned earlier in this article, the FTC suggested the possibility of requiring trading software to be tested before it was deployed. An Op-Ed piece in the New York Times the next day claimed this was a ludicrous idea, because the development and deployment of such software was so dynamic that testing was impractical. Well sorry! We expect banks to take care of our money. We appreciate new developments like ATM machines that can scan checks, but we don’t need such bells and whistles tomorrow. We do need to be sure that our money is in reliable hands, and it is time to insist that banks clean up their acts and ensure that the software we and they depend on works properly. No lesser standard of care is acceptable!
- Financial performance impacted by the pandemic
- Expected credit loss (ECL) charges of £45.8 million recognised on loans and advances to customers
- Profit before tax (PBT) was impacted by the adverse effects of COVID-19 and the subsequent provisions set aside, reducing by 89% to £5.9 million
- Customer deposits rose by 25% to £7.6 billion while capital remained strong with a CET1 ratio of 12.3%
- A total of 15.9k payment holidays granted across the Group
- The specialist bank continued to operate effectively through COVID-19
- 98% of employees moved to remote working within days and no staff furloughed
- Successfully achieved accreditation under UK Government’s CBILS
- Continued investment in technology to digitalise the business
- Shawbrook “cautiously optimistic” as momentum begins to return to certain specialist sectors
Shawbrook Bank has today (Monday 10 August 2020) published its half year financial results for the period ending 30 June 2020.
The specialist bank confirmed it had set aside £45.8 million of provisions to provide for potential future loan impairments caused by COVID-19. The bank reported it had also granted a total of 15.9k payment holidays to support its customers through the pandemic, of which 10.8k remained in force at 30 July 2020.
As a result of such provisions, the bank’s profitability was impacted with a reduction in PBT by 89% to £5.9 million.
Despite the challenging market conditions, the bank retained its active position in the UK savings market, increasing its retail savings deposit base by 25% to £7.6 billion. During the period, Shawbrook also successfully completed a £75 million Tier 2 re-financing to further optimise its capital structure.
Ian Cowie, Shawbrook Bank’s Chief Executive Officer, said that COVID-19 has had a clear impact on the bank’s financial performance, but Shawbrook remained in a position of strength.
He commented: “Prior to COVID-19, the Group had continued to make good financial progress, starting 2020 with a strong balance sheet and prudently positioned capital and liquidity base.
“To further optimise the Group’s capital structure, during H1 2020 we initiated a Tier 2 refinancing and, despite the challenging market conditions, successfully completed the £75 million issuance in July.
“We have also maintained our active position in the UK savings market. However, the longer-term economic impacts of the pandemic remain hard to predict and as a result we have recognised expected credit loss charges in the period on loans and advances to customers of £45.8 million and on loan commitments of £1.5 million.
“While this has clearly had an impact on profitability, our capital strength positions us well to support our customers and grow our business in line with appetite as we enter the second half of the year.”
Throughout COVID-19, Shawbrook maintained full operational functionality, with no staff furloughed and 98% of employees transferred to remote working within days of the UK lockdown being announced.
The bank adopted a series of concession opportunities across its product range to help alleviate the financial impacts of COVID-19 on its customers. During this time, Shawbrook also successfully achieved accreditation to the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS) to provide further funding support to its SME clients.
Mr Cowie added: “Since the outbreak of COVID-19, our focus has remained on supporting our staff, customers and partners while at the same time safeguarding the long-term sustainability of our business.
“When the UK lockdown was announced in March 2020, we acted with speed and agility, moving to an almost entirely remote operation within days. Led by a stable and experienced management team and with the support of new and existing technology, we have continued to operate effectively throughout this period.”
Throughout the first half of the year, the bank also continued to identify investment opportunities to further digitalise its proposition, with a core focus on its SME offering.
Mr. Cowie added: “Notwithstanding the pandemic, we have continued to invest in our business to help drive our strategic ambition to become the UK’s Specialist SME Lender of Choice. As well as the ongoing deployment of targeted digital solutions across the Property, Consumer lending and Savings businesses, our investment in the development of a new growth platform in our Business Finance franchise will serve to further modernise our offering, delivering an enhanced customer journey as well as significant operational efficiencies.”
Looking to the future he continued: “Although significant uncertainties regarding the broader macroeconomic impact and pace of recovery remain, we are cautiously optimistic in our outlook as we start to see signs of momentum returning to certain of our specialist sectors.
“Our management expertise and prudent approach to credit decisioning, combined with investment in our digital propositions, means we are well positioned to adapt and respond to opportunities as they arise throughout the second half of the year.”
Better banking—everyday in everyway
By Bruno Pešec president at Pesec Global.
Some of the most innovative companies are also great at continuous and incremental improvement. I want to talk about three key points when it comes to succeeding with implementation of continuous improvement.
First is acknowledging that employee empowerment is at the heart of continuous improvement. The second is striving for total involvement by everybody, everywhere, everyday. Final, third point is that improvement is improvement. Cents turn into dollars.
Let’s expand on each.
Employee empowerment is at the heart of continuous improvement
In “Kaizen: The Key To Japan’s Competitive Success” Masaaki Imai divulges following as the core principles of continuous improvement:
- Process orientation. “Before results can be improved, processes must be improved, as opposed to result-orientation where outcomes are all that counts.”
- Improving and maintaining standards. “Lasting improvements can only be achieved if innovations are combined with an ongoing effort to maintain and improve standard performance levels.”
- People orientation. “Improvement is people-oriented and should involve everyone in the organization from top management to workers at the shop floor. Further more, it is based on a belief in people’s inherent desire for quality and worth, and management has to believe that it is going to “pay” in the long run.”
These principles are interlinked and interdependent. Without empowered people there can be no improvement. Micromanaging and overbearing bureaucracy stifle human creativity and desire to do better.
Due to the nature of my work I have residence in two countries, Croatia and Norway. Consequently, I have bank accounts in both as well. On one occasion I was had to make a bank transfer while in Croatia, and went to my local bank office to do so.
To my surprise they requested my debit card. I explained that I’ve forgotten it, but surely that shouldn’t be a problem as I’m here in person, have my national ID as well as passport, and cash required for transfer. The bank teller explained that he can ask branch manager to approve it, but it takes seven days.
Since the manager was right there, I asked why can’t we do it right now, since we are all here. “Sorry, such are the policy and procedures. I know it doesn’t make sense, but we must follow them.”
Banking is a highly regulated industry; fraud detection and anti-money laundering processes must be impeccable; but above is neither.
Everybody, everywhere, everyday
Bottom up is usually brought up when discussing implementations of continuous improvement. While it is true that those closest to work are most suitable to improve it, they often lack decision making power and budget to do so on a scale.
That’s why “everybody, everywhere, everyday” is a better mental model. No one is absolved of improvements. At any given moment there are at least hundred things you can improve right now, right here.
Think deeply about following:
- Everybody in the organisation should be aware and have an understanding of organization’s strategy and objectives. There’s shouldn’t be multiple interpretations, and it should be unambiguous. Without clarity improvement efforts are going to be scattered and without impact.
- No elitism, no absolution. Everybody should be actively committed to daily improvement, regardless of their rank or seniority. Leaders should be especially cognizant of leading by example. After all, how can they demand from others what they themselves are not doing. That’s hypocrisy at its finest.
- To improve is to learn, and to learn is to improve. Unlock even more value from your continuous improvement efforts by capturing the learning and sharing it broadly and deeply within the organisation. Ideas spawn ideas, perpetuating a virtuous cycle. Peer learning is also a powerful intrinsic driver.
Improvement is improvement
Director of one European bank invited me to their customer service centre, and we were to discuss how could they innovate better. After the meeting I asked him to take me on the walk around the office so I can observe the processes. He was more than happy to oblige.
The walls were plastered with wallpapers and dashboard, colourful metrics were displayed one the hanging screens, and there was a special area dedicated to the “Hall of fame.” Much to my delight there was a wall dedicated to the improvement ideas.
It was covered with large sticky notes, each with few sentences about the problem and potential solution. I picked a few at random, and noticed that they have dates written in bottom left corner. All of the dates were months ago.
Perplexed, I asked the nearby call operator to illuminate me. What’s going on? She fired her response like she was just waiting for someone to ask her that question:
“After each call we used to write down some improvement ideas. At the end of the week we collated and submitted them to the improvement department. They were constantly rejecting our proposals for either being too small or not innovative enough. After few weeks we stopped sharing and tried to implement what we can. That resulted in one of us being scolded for taking initiative without approval, so we just stopped altogether.”
Director was blushing, but hasn’t said anything. I thanked the operator for her honesty, and told the director that he should find time to fix this. By ignoring small, incremental improvements, they are effectively atrophying their organisational muscles. And not to mention all the savings that are left behind, lost forever. Cents turn into dollars.
I’ve talked about three key points in regards to the role of employee empowerment in the implementation of continuous improvement, and what you can do to use them well. Let me remind you that if you really want to engage in this, the first thing to do is take any of them and start today.
UBX appoints new Chief Investment Officer
In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).
As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.
Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.
Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.
“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.
Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”
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