A case for Banking Technology division spin offs

Back in the early 2000s was when banks truly had technology that gave them a competitive advantage. With this in mind, all banks had marched forward and built out their own technology infrastructure. But as the years passed and the financial crisis of 2008 hit, not only was there less investment and excitement around technology, there was also regulation in place that limited “creativity” in the field. This has caused under investment in technology in many of the major banks since the hey days and they are now left with archaic technologies that are operationally inefficient.

While non revenue generating technology gave banks a competitive cost advantage in the past, these technologies are widely available to everyone these days. Data centres — in the form of cloud and software companies expanding their portfolio of financial technology offerings have eroded this advantage significantly. A lot of the technology that banks considered precious is now widely available in the software market. And this causes a productivity problem.

Multiple banks spending the billions on the same technology and people devoting several years towards these endeavors is a catastrophic debacle from an economics standpoint. And yet this is the reality today. Economics would suggest that the best possible outcome for everyone is to have available resources allocated to the most efficient uses. Every year, billions are spent on reinventing the wheel — which could be more efficiently allocated to better uses and there is further loss of productivity from thousands of people that work for these causes.

One large bank could spin off its technology department (with end to end support for all banking activities) and offer other banks to buy a share in it (the SWIFT model). This will align interests and one technology company can service several banks. This is also deter the threat from fintech companies encroaching on what was once considered land of the banks