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Barclays results out today show that the credit crunch is hitting different banks in different ways.  Profits were a whopping £7.08bn, only 1% down on last year’s record.  That doesn’t sound like an industry in crisis.  You might be thinking “what credit crunch?”

However, the Northern Rock fiasco, coupled with Bradford & Bingley’s grisly profit figures clearly continues to dampen the sector.

When you consider that so called mortgage banks, Northern Rock and B&B, have little exposure to the US housing market (which caused Barclays to write down $1.6Bn), you have to wonder whether it is in fact the British housing market that is in crisis.

I mentioned after the last Barclays trading update, increased confidence in the credit card operation and this seems to have been well placed with profits up by one fifth.  Perhaps the diversified banking model is the only one that can survive these turbulent times.  Is the role of the little guy, focussed on one specific banking niche, dead?  Is it necessary to have a balanced portfolio of businesses within a bank to ride the swings and roundabouts of outrageous misfortune?

Perhaps it is time for Barclays to bid for Bradford & Bingley, before one of the American banks steps in to get it on the cheap.

In a most unsatisfactory end to another Government shambles, it has been announced that stricken mortgage bank, Northern Rock, will be nationalised until market conditions improve, and the value of the bank increases, whereupon Darling dreams that bidders will flock back to repay the British taxpayer a handsome dividend.

In the meantime, I expect this to be the worst decision for bank employees, shareholders, customers, and the banking industry in general, not to mention taxpayers in the long run.

It is widely acknowledged that a new brand is required for Northern Rock if it is to survive, never mind thrive.  Is the government going to rebrand it “Brown and Darling”  - a secure home for your money?

The Government is badly placed and very inexperienced at running a bank.  I expect that value in Northern Rock will actually be eroded and the taxpayer will lose out again.  In the meantime, no doubt Northern Rock’s competitors will be considering their legal positions regarding the special Government assurances and protections that Northern Rock savers enjoy.

What a mess.

However, you have to be somewhat sympathetic to Darling’s dilemma.  The mistakes were made very early in the affair with the Bank of England, the FSA and not least Northern Rock management all carrying some responsibility.  It is easy to blame the Government when there have been many parents of this problem child.

Whilst there is plenty of serious coverage of Jérôme Kerviel and his antics, I was amused to see French commentators renaming the stricken bank “Société Généreuse“.

The serious point to me is about governance.  Whether IT systems, banking processes, or capital management, there must always be governance, assurance, security surrounding human activity.  That is not say a lack of trust, far from it.  But there needs to be parameters within which people are allowed freedom to act, combined with systems that prevent them straying outside these, when to do so has such serious consequences on the organisation and its environment.

The larger the enterprise, the more this is so.

Personally, I can’t think of a single reason why I might want to visit a branch of my bank (personal bank at any rate).  I much prefer to use the internet for transactional stuff and the telephone for problems and advice.

But it seems I may be in the minority because, after years of “consolidation” many UK banks are actually increasing the number of branches.  Abbey (part of Banco Santander), for example, are planning 300 new branches  with an Abbey spokesman quoted as saying that although internet and phone banking are available, many customers “prefer dealing with our staff face to face in a branch”.  In case you are wondering whether 300 branches is a big deal, it represents an increase of 43% on the existing Abbey estate.

It seems that HBOS and HSBC are making similar moves.  Maybe my dream of being able to run my life through my mobile phone is being hampered by the old fashioned attitude of the UK consumer.

I was idly leafing through my December copy of The Banker in which 2007 awards were liberally sprinkled upon the great and the good of the banking industry.  But for such an IT driven industry, I was amazed to find that only one award existed bearing any relation to technology.

José María Fuster of Grupo Santander won “CIO of the year”.  Even in the title, The Banker mistakenly named the award Chief Investment Officer of the year - oops!  I guess that getting some parts of the banking industry out of the old oak-panelled rooms and into the modern world will take another generation!

Meanwhile, no such delay for Grupo Santander whose SOA inspired “Alhambra” multi-channel core banking system (to replace the already successful “Partenon” platform) appears to be steaming ahead and if reports are to be believed, will be something of a kick up the banking industry’s behind.

Like HSBC, Santander’s reputation is to build rather than buy.  For Santander, this decision seems to be related to competitive advantage, not cost.  If one buys an external system, one benefits from all the experience that the vendor has gleaned from working with other organisations.  However, this can create a lowest common denominator.  This may be OK in non-core parts of an enterprise, if you just want to make sure that you are no worse than any of your competitors, and to do so at least cost.  This can free your corporate energy to focus on building competitive advantage at the front end, via marketing for example.

But if you are using your systems and processes as a route to competitive advantage then build is surely better.

There’s a mood of change at Barclaycard.  Once seen as the problem child of the Barclays Group, it appears to be much more loved these days.  A recent trading update advised of strong profit growth in the UK division and the US arm on course to make a profit in 2007.

It’s not just improvement in bad debt provisions.  A more independent focus and innovation (rare in financial services) is driving the brand forwards.

I criticised Barclaycard for lack of ambition when they launched the One Pulse card.  I feel absolutely certain that their recent decision to invest in mobile payment market testing, is a direct response to my post. 

Of course, it is impossible for any organisation, no matter how large, to do this on their own.  But all the technologies already exist and it only takes some co-operation on the technical as well as commercial side between the different parties to make things work for the customer.  In this case the parties are Barclaycard (banking), Nokia (handset manufacturer), O2 (mobile network), TfL (Transport for London), Visa (card issuer), TranSys (consortium that runs the Oyster proximity payment system).

What a fabulous piece of joined up thinking!  I’d love to be one of the guinea pigs.  Furthermore, I am already a customer of every one of these organisations.  The bad news?  There are only 500 trial places available.  Anyone know how I can get on the list???

Friend or foe?  Ask any enterprise software vendor where HSBC sits on the Buy vs Build spectrum and the answer will be as firmly towards build as any enterprise you might encounter.  In that sense, if they are never going to buy your product, I guess they are a foe.  On the other hand, if you work in the business in HSBC, I suspect you may hold a different view, at least according to a case study published in UK journal, Computer Weekly of today’s date.  The study tells how HSBC has restructured its IT division and its relationship with the business.

Richard Dunlop, chief operating officer of HSBC’s technology services group in Europe is the architect behind the changes which started in 2004 and were clearly driven by the “competitive threat posed by external service providers such as outsourcing suppliers”.  Dunlop said “we were not getting the economies of scale that we should have from employing 2,000 developers in the UK”.

But before the cynics amongst you leap to the conclusion that this was just some artifice aimed at simply reducing costs at any cost, it seems there is more to the story.  The threat of external service providers also alerted HSBC IT to the need to service their own business colleagues.  They appointed relationship managers as single points of contact so their sole focus was on managing “the account”.  That put them in a position to “work in partnership with the business by proactively providing it with information that it can use to drive costs down and improve the bottom line”.

Hang on a minute, isn’t this the sort of language and behaviour normally adopted by the very external vendors HSBC IT are competing against?  To win business, external suppliers need to offer more than an in-house IT function can offer - better price, better product, better service, better relationship and you bet they need to look after their own costs too.

So it seems that HSBC are successfully competing against external suppliers by playing them at their own game.  This appears to be good practice and judging by the number of technology driven customer service innovations launched recently, I can only assume that the business is happy too.

If you followed the hyperlinks above, the alert amongst you will have picked up that some of the announcements were actually HSBC in partnership with an external vendor which only goes to show that there is no such thing as black and white when it comes to Buy vs Build.  But if, as an internal IT department, you want to maintain control over your own destiny, acting like an external supplier is probably a good weapon.

I don’t know why I have such an interest in this topic but having just read this Finextra report I am still pining for a leap forward in contactless payment technology.  Or not so much a leap forward in technology, as a bit of joined up thinking and collaboration.

I don’t want a VISA key fob, a payment card or a calculator with proximity technology.  I don’t want anything new to carry round.  Quite the reverse, I would like to greatly reduce all the crap in my pockets, so please my I have my contactless payment technology installed in my mobile phone?

If we are really in a so-called technological revolution, why do I still need a wallet, or a key ring for that matter?

It is becoming ever apparent that Financial Services companies, and in particular banks, in the UK are adopting process improvement methodologies from the manufacturing sector.

One bank that I know well, specifically refers to its back office as “the factory”.  I was at another bank last week meeting the Director of Business Process Re-engineering (BPR).  The very appointment of this title at such a high level is an indication of the importance of process excellence in the financial sector.

Just about every UK bank I am aware of has some capability based around Lean/Six Sigma or similar flavour and many of the recruits are coming from manufacturing, retail, and other service companies.

There are big gains to be made since (although the banks wouldn’t like to admit it) they are horribly inefficient.  A further concern is the cost/income ratio.  Most senior executives have some target set around this ratio.  Major investments in technology can take years to pay back.  This increases costs in the short term and brings any benefits way down the line, which adversely affects the cost/income ratio in the short term.  Call me cynical but most senior execs will have moved on by that point, so they will not see the benefits in their bonus payments.  So there is a degree of short-termism and BPR fits the bill because it is about making low cost investments in continuous improvement.

I would argue that this actually benefits both the short and the long term, and you have certainly heard me argue before in favour of incremental rather than big bang projects for a whole range of reasons.

So it is clear to see why they are doing it.  What about how?

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My dream of using my mobile phone to replace all the useless tangible items in my wallet (like cash, credit cards, debit cards, memberships cards, receipts, loyalty cards etc) is clearly some way off, in the UK at least.

Royal Bank of Scotland is the latest UK bank to offer a contactless payment card.  But targeting 12 McDonald restaurants in London by October as being capable of taking the payment?  Exactly what use is that?

Come on UK banks - we need more ambition here.  The technology is surely available to jump the next 14 tiny steps and take one giant leap into the 21st century by enabling us to use our mobile phones as wallets?

Maybe APACS needs to get together with the mobile phone manufacturers and create some standards?  Or maybe we need to think more widely.  Is this a job for Monitise?  I suppose Monitise are too payments focussed, so to get loyalty/membership cards in the mix perhaps Nectar need to get involved too?

Or maybe there is a new business venture here - perhaps a spin-off from a major tech company, a mobile phone manufacture or even a forward thinking bank?

Surely the rest of the world is miles ahead of the UK here - can anyone enlighten me?