The effects of compounding are the eighth wonder of the world. Here’s what happens when you apply compounded benefits to banking.

I was standing in the queue at Gatwick Airport with a suitcase in one hand and a passport in the other. I was already looking forward to a week of warm weather. The check-in process was taking longer than expected, so to pass the time my wife started analysing the system: the placement of the machines, the flow of people and the tagging of baggage. It was a fun discussion.

How could we make this process better? It was interesting because, with no experience of working in an airport and no internal politics, we were both incredibly open to new ideas.

This reminded me of a different experience a few years ago when I was involved in transforming the back office of a company. I suggested one day in the meeting that we convert every measure from hours (which was the standard value) to seconds. Surprised faces, but no objections. My next statement took more time to digest. I said that we should streamline processes that usually take hours down to seconds. Every face around the table looked back at me like I was nuts.

It didn’t happen overnight, and yes, it required investment. We cut eight hours (28,800 seconds) right down to just 12 seconds. That’s a reduction of 99.94% by using the knowledge of compounded benefits.

Compounded Benefits

So, what is compounded benefits in the context of a banking platform? Well, imagine looking at design and processing from every angle. Just like a snowball rolling down a mountain and gathering snow, every improvement you make compounds when combined with other changes because many of these processes are interconnected.  

For example, how much can I reduce the processing and lead time by moving the application rather than transferring data? How can I reduce the time it takes to store data? When I store data, how can I make this more efficient? If the data needs to be moved between nodes, how can we save a few seconds and a second to milliseconds? Can we make any improvements to the design, memory or CPU of the server?

The changes when compounded make a huge difference, or should I say billions of differences. The banks have much to gain by reducing end-to-end processing times. In other words, finding ways to do things in seconds rather than hours. The problem is that banks rarely look closely at their procedures and often lack the mindset. If we look at Liquidity and Risk, both areas would benefits hugely from receiving data earlier and from finishing the processing earlier. We are talking billions, annually.

The Business Case

If in doubt, I always look at the business case. If I can make X billion by increasing the cost of a platform with Y million, then I invest. So, what’s stopping banks? I suspect the reluctance to target processing speed has more to do with habit and fear of change, or even the assumption that it can’t be done. The warning signs are comments like, “We have always done it this way”, “If it’s not broken, don’t fix it”, or “The person responsible for X is still with the company so we can’t change it”.

Make Billions

The journalist and author Tom Brokaw said: “The chains of habit are generally too small to be felt until they are too strong to be broken.” And that’s the truth right now for legacy banks. But the opportunity right now is huge. A bank focusing on reducing end-to-end processing times, stand to make a massive return on investment.

When billions are on the line, every second count.