March 2018 – FINthinkers

Towards Canary Banking

Services offered by banks are mainly commodities sold with rather opaque pricing strategy. Client experience has become the main differentiator as underlying services are largely the same. The challenge has become creating outcomes which integrate into the life of the customer via respective touchpoints of the client’s eco system. This becomes difficult as the number of potential touchpoints increases significantly (ubiquitous computing).

The focus within banks has moved from operations and backend infrastructure to the touchpoints. Such focus leads to the shift in investments – which leave the backends under-invested hidden from the user by layers of newer systems. This trend started years back when the financial services industry realized that the internet is not a transient effect and changed the way business is fundamentally done. The adoption accelerated with the rise of mobile and the next catalyst with the increase usage of conversational technologies like chat or voice.

Adding more layers does not improve the overall system – instead only to delay and cover up the increasing issues and complexities of the fragile legacy backend which can no longer be sustainable (Measuring complexity in networks). From an opertional perspective the whole architecture becomes more and more unmanagable and risky highlighting the need for a substantial refactoring or more likely a total re-architecting.
Let’s for the moment assume that you own such a “backend” which becomes increasingly hard to change and difficult to operate. What could be a way out of this situation?

Be bold and start greenfield. This allows to get rid of the layers of legacy and build a system which matches current needs.
Try to be clever and refactor the system in an incremental approach. You have to be faster then the changes in the environment as you have to catch up and eliminate debts while adding the functions required to stay competitive. Implementation risk and sunk cost avoidance are the typical arguments backing this option.

Most organizations will go for the second option and try hard. They neither have strong leadership and capability(s) to aim for the first option nor the skills to actually build something new based on current state practices. The organization and the management are only trained to do small changes and the “internal immune system” reacts immediatly against any major change which could endanger the status quo.

Maybe it is better to start with a canary banking approach – where the next version of the bank is built up while the first is operational.

It is similar to driving a car – you choose one, drive it, maintain it and at some point you switch to another model. The new model may contain some parts already used before – that’s fine as long as they fit into the new model. The approach is rather different than continuously adding/ changing external cosmetics elements to an outdated Ford-T backend.

Measuring complexity in networks

People like simplicity. They prefer linear systems where an input translates in a well understandable way into an output or result.

The world is a mesh, a complex network of elements which influence each other. Small effects on one side may lead to a chain reaction in the network and cause a big change.

Many organizations have big difficulties to deal with the increasing complexity which is inherent to the shaping mesh economy. Established rules and patterns become less effective or even contra productive. It has become difficult to stay lean while things change fast – typically organizations and their supporting infrastructures grow continuously amalgamating approaches and technologies over many years.

The typical reaction is to launch some form of a simplification program. Such programs require good KPI’s to understand the benefits of the measures taken. But meaningful KPI’s are hard to find.

Organizations typically start counting elements as a measure and aim to reduce complexity by reducing the number of similar elements. Reducing e.g. the number of applications in use feels right – but it may come with side effects. This measure may decrease agility. Agility is required in order to deal with complexity. It may also lead to less productivity as broadly used applications may make it harder to deal with complicated situations where specialized tools provide a better support.

All problems are different and a best practice only fits to a specific set of problems. One approach which I find useful to measure complexity in the network is based on a heuristic which goes back to Robert Glass.

“For every 25 percent increase in problem complexity, there is a one 100 percent increase in solution complexity”

Let’s make a thought experiment. Let’s assume we want to measure complexity of a system with a set of functions which must interact with each other in a defined way.

One extreme is to have all functions in a single block – we have now a complicated block which hides all interdependencies between functions from the outside world.
The other extreme is to have a block for each function and then connect the blocks based on the functional dependencies. Now each block is simple but all interdependencies have been externalized which makes the network complicated.

This heuristic above means:

If we have 4 functions in a block and add another to it, then the solution complexity of this block doubles.
If we add an additional connection to 4 existing connections between blocks, the complexity of the network doubles.

The heuristic allows to find a setup where the functional bundling into nodes and network connections are in a good balance. Given this heuristic it becomes possible to start measuring and optimizing the complexity of networks. Obviously not all functions are equal neither are all connections. Such factors can be included into a more detailed approach which allows measuring and optimizing an application landscape towards a low complexity.

The most decisive factor may finally however be the solution approach and the clarity of the design. If there is a simpler way to solve the problem then this is the first step to do. And this leads back to the starting point – in order to truly simplify first the problem space and the solution approach need to be challenged. They change continuously.

Information dissemination ethics

Digital technology encourages the dissemination of knowledge and know-how. Its ability to influence socio-economic structures also means it confers power and a competitive edge on those who design its applications over those who merely use them. Ethics, a form of critical thinking on social structures and traditions shaping the lives of societies. Aim at questioning moral biases and opening new choices. Digital libraries belong to an emerging digital culture. New questions concerning production, collection, classification, and dissemination of knowledge arise. How is the integrity, validity, and sustainability of these digital collections guaranteed?

Information technology is now ubiquitous (Ubiquitous Computing) in the lives of people across the globe. These technologies take many forms such as personal computers, smart phones, the internet, web and mobile phone applications, digital assistants, and cloud computing. In fact the list is growing constantly and new forms of these technologies are working their way into every aspect of daily life. Have we allowed the digital medium to grow chaotically and carelessly, lowering our guard against the deterioration and pollution of our infosphere. Is it due to the desire and reflection of only what we wanted – entertainment, cheaper goods, free news and gossip – and not the deeper understanding, dialogue or education that would have served us better.

During prior mediums of disseminating information (e.g. newspaper, physical mediums) there was concerned with maintaining standards, adherence to accuracy and an informed public debate. We now have the same problem with online misinformation. These kinds of digital, ethical problems represent a defining challenge of the 21st century. They include breaches of privacy, of security and safety, of ownership and intellectual property rights, of trust, of fundamental human rights, as well as the possibility of exploitation, discrimination, inequality, manipulation, propaganda, populism, racism, violence and hate speech. A lack of proactive ethics foresight thwarts decision-making, undermines management practices and damages strategies for digital innovation. The near instantaneous spread of digital information means that some of the costs of misinformation may be hard to reverse, especially when confidence and trust are undermined (Emotional Trust in an Hyperconnected world).

How do we establishtrust through credibility, transparency and accountability – and a high degree of patience, coordination and determination. Will this be fulfilled with an ethical infosphere to save the world and ourselves from ourselves?

“Crypto Franc” – key ingredient for a Swiss national blockchain

In various countries there are discussions about a crypto version of the national fiat currency, which in the case for Switzerland this could be the “Crypto Franc”. We joined the Fintech Rockers writing the exposé Swiss national blockchain and cryptocurrency.

The exposé proposes the “Crypto Franc” in the context of a national blockchain which would serve as the digital backbone in the shaping mesh economy. We expect with a stable currency available on the blockchain that it will provide a catalyst effect of the economy. Such stable currency could be the “Crypto Franc” issues by the SNB directly pegged to the Swiss Franc.

“Such blockchain infrastructure, carried jointly by all Swiss cantons, will have an equivalent catalyst effect as the initial introduction of the railway system or the creation of the Gotthard tunnel during the age of industrialization. The Swiss national blockchain will enable local as well as foreign entities and all people with an interest and/or business relation with Switzerland to hold genuine Swiss cryptocurrency and/or execute transactions via legal compliant smart contracts.”

For Switzerland (and other countries) it is imperative to think about its future in a digital mesh economy. Such an envisioned blockchain would be an excellent foundation. There are ongoing debates about such a strategy but prompt and immediate decision and actions on this topic are required in order to stay a leading country in the global financial system.

“The introduction of Swiss cryptocurrency “Crypto Franc”, bound to the issued fiat Swiss Franc by the Swiss National Bank (SNB), revolutionizing digital payment capabilities. The national blockchain will enable and bring the Swiss industry(s) to the international forefront of the digital age.”

The exposé was mentioned under the title “E-franc pipe dream fails to arouse Switzerland” on swissinfo.ch recently.