The Real-Time Banking Paradigm Shift

Whilst you were asleep last night, all bundled up cosily under the sheets, thousands of computer servers were chugging away under the most strenuous conditions,with CPU and memory utilisation typically exceeding 4 to 5 times their normal day light operating levels. In, fact for most of these servers, this is the greatest load they will see in their lifetime since even during normal business hours, they may never reach more than 20% utilisation, but in the depths of night, this can jump to over 80% utilisation for sustained periods of hours or more.  In the world of banking, this is when all of your daily transactions really take place – from the hair dressing appointment you had at 9:30am through to the $100 you took out at the ATM for lunch and groceries and the on-line transfer to the real estate agent you made at 4:00pm to pay your rent; All of these transactions were finally executed and balanced sometime between 9pm and 6am – long after your credit card receipt, ATM receipt and on-line Transaction receipt indicated.

For many years now, this has been the worst kept secret about real-time banking. That balance you were given after each of your transactions  was just lip-service or a promise – A promise that tomorrow when you wake up, the money will be gone from your account and transferred into the account of the retailer or biller through which you made the transaction. Throughout the day the Bank has just kept a running total of your debits and credits against your opening balance and kept a tally of what should be left to ensure you don’t go over (unless you have a credit account). Overnight, it executes all of those transactions and validates that the final balance equals its running tally. You will probably have noticed that your pay always seems to go in overnight and magically appears the next day.

The one good thing about this process was that it was incredibly fast. Bank systems did not have to wait for connections and balance checks and that sort of thing, nor did it have to make complex deep diving queries into the bowels of its databases to validate if you have sufficient funds – this type of information was typically cached in memory overnight after the transactions had been executed and balanced. By caching this data, it allowed the queries that accessed your data to return the transaction details in the blink of an eye.

So where is this history lesson in financial technology taking us? Real-time.

Everything going forward will be about how fast we can get the right data to the right people, and in the world of banking, that means real-time transactions. That means the money moves when you click the button. So Why is this so important? with modern technology, we no longer need to wait for all the debits and credits to be tallied before we determine how much goes into which account.

Now, instead of waiting until you are tucked up fast asleep in bed, Servers are processing Transactions as soon as they come in – whatever time of the day that may be, albeit with some levels of queueing to allow for busy periods; and when the transaction is processed, your account details are updated immediately and your new balance is calculated and written to the database. Most importantly, the funds move and are available immediately.

So whilst Moore’s Law suggests that Computers are getting increasingly faster whilst reaching an ultimate limit regarding transistor size, we have reached an equivalent inflexion point with real-time banking. We can now create a new baseline from which we can aspire to improve transaction speed and Computer performance ; We can take that overnight peak of 80% utilisation and share it across the working day which should result in a multitude of possibilities – faster transactions,  more information about your funds like fees charged or interest accrued, potential opportunities to save, etc.

Right now, real-time banking provides:

  • Increased Visibility for customers, the bank and financial regulators;
  • Improved anti-fraud & Money Laundering prevention;
  • Reduction in costs to the Bank due to a reduction in Legacy systems and required legacy skills;
  • Increased Competition

Consider the vast amount of money sitting in someone else’s account accumulating interest for those extra few hours – especially for larger business’s that move billions of dollars every day. Now, interest is only ever charged daily so this shouldn’t cause anyone to gripe, but given the move to real-time,  banks may need to start considering a move to interest calculated hourly – so the early bird can indeed catch the worm!

So if your bank is starting to offer real-time banking, give some thought to the thousands of computer servers that finally get to rest at night as you crawl under the covers for a well deserved night of sleep and dreams…dreams of a better tomorrow.

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