1. In 1844, the Telegraph was rolled out across the United States. This allowed simple messages to be sent from one side of the United States to another. However, its use was limited, it needed specific hardware, it needed humans at both ends, and it was prone to error.

2. In 1865, the Pantelegraph was rolled in France. This was effectively the first facsimile machine. Again its use was limited, it needed specific hardware, it needed humans at both ends, and it was prone to error.

3. In 1866, the first trans-Atlantic cable was laid between the UK and the United States. This was a major step forward because it allow messages to be sent within hours as opposed to physically sending the message via ship.

4. Finally, in 1918, the Fedwire Funds Service was implemented by the Federal Reserve Banks. This allowed banks to transfer money between all 12 connected Banks. It used a Morse code system.

1. Firstly, several internal improvements were made. Book-keeping records were automated, thus removing the manual overheads and operational risks of maintaining manual paper ledgers.

2. Secondly, it allowed several new products to be offered to customers.

1. The processing power of mainframes and minis increased dramatically which allowed more complex operations and functions to be supported. The use of minis become more popular because they were easier to operate than mainframes and they were cheaper to operate.

2. The invention of the personal computer (PC) was in the early 1980s. IBM created the first PC but it was superseded by a flood of cheaper and often more powerful clones. All of these were running MS-DOS which meant applications written for one manufacturer of PC could run across all PC clones. This then allowed an explosion of powerful and easy-to-use packages. This covered spreadsheets, data analysis, and word processors. The growth of PCs started to reduce the demand for mainframes and mini-computers.

3. There were further advances in programming languages on mainframes, minis, and PCs. These languages were easier to use and provided much better functionality.

4. Database technologies also improved and become easier to implement and use. Previously, databases were a collection of clumsy sequential indexed files which were hard to use, maintain, and integrate with. However, Relational Database Management Systems had now become mainstream because they were easy to use, easy to understand, and easy to maintain.

5. The concept of the graphical user interface (GUI) was developed which allowed the user to intuitively interact with a computer using a mouse and set of icons. This suddenly made computers much easier to use. There was no need to remember a long list of commands. One could just click on an icon.

6. The increase in processing power for mini-computers/mainframes, the invention of PCs and GUIs allowed the concept of client-server computing to be born. The theory behind this is that there is a central computer that provides data to many networked PCs.

7. Finally, the first primitive video conferencing systems were implemented, although they were very slow to use because of the very limited network bandwidth.

1. There was a continued increase in the automation of manual processes. This covered many areas such as account openings and insurance liability oversight.

2. The increase in database technology and the associated data analysis software allowed firms to genuinely start to perform analysis on their clients, sales, profits, costs, and so on. (It could be argued that this was the first attempt at data mining with the financial services industry.) Firms could assess their client base to see which ones made their money, which ones cost them money, investigate cross-selling opportunities, and so on. Firms could also investigate their operating costs to see where there were blockages so process improvements could be implemented.

3. There was also an increase in harmonizing standards across the industry. For example, the same message format would be used across the industry for sending money, instructing a foreign exchange trade, and so on. This allowed much easier communication between firms which then helped with the increase of industry infrastructure.

1. In 1984, the world’s first online shopping took place. Jane Snowball, from Gateshead UK, purchased food from her local supermarket using video technology.

2. In the late 1980s and early 1990s, the Globex trading went live and its standard messaging allowed access to a range of financial assets such as treasuries, foreign exchange, and commodities.

3. In 1986, the UK ATM network LINK went live with 33 banks and building societies which allowed customers of each of the 33 members to withdraw money from any of the members’ ATMs. In 1989, LINK merged with the Matrix Network to provide more coverage for customers across the UK.

1. In 1971, the National Association of Securities Dealers Automated Quotation (or NASDAQ) was formed in New York, in the United States, to allow trading across parties.

2. Finally, the convergence of standards also helped with the forming of SWIFT (Society for Worldwide Interbank Financial Telecommunication) which provides a network for financial institutions to send messages to each other in a secure, standardized, and reliable manner. SWIFT covers a wide range of messages such as Cash, Treasury, and Securities updates and movements.

1. Firstly (and as mentioned above), the new technologies only really allowed changes to the inner workings of firms or the general market infrastructure. There was little benefit to the customers.

2. Also, technology infrastructures started to become really “complex.” They often consist of different technologies (e.g., mainframes, minis, and PCs), running various packages (covering in-house developed, standard off-the-shelf packages, and bespoke off-the-shelf packages), and a spaghetti of integrations between in-house systems and market infrastructures. This infrastructure needed to be supported and maintained by an expensive staff base covering many different skill sets.

3. Firms were completely reliant on technology to operate which meant any outages or issues could be serious problems. Therefore, firms had to implement controls around their technology to ensure it operated as designed with suitable measures in place in the event of problems. This helped with the rise of formal standards such as ITIL (was Information Technology Infrastructure Library) is a set of detailed best practices covering Service Design, Service Transition, Service Operation, and Continuous Service Improvement.

Also, these technology infrastructures were becoming more and more complex to change. Previously, upgrading a piece of software was a straightforward task but now, because it is integrated with so many other components, it is a risky and challenging exercise that required a large amount of planning, development, testing, and post-implementation support. Again these challenges help with the rise of standards around Release Management.

4. Finally, there is often an issue with social acceptance. Despite the benefits new technology offers, it is not uncommon for certain people to be nervous about using this technology. Therefore, it could take a while for new technology to become socially acceptable. For example, it took several years for ATMs to become popular in the UK.

1. Firms could develop websites that could allow customers to self-service on a 24-hour day 365 days per year basis. The initial websites were no more than “brochure-ware sites” allowing customers and prospects to download literature, find out information, or request details. However, over time, this functionality would expand to cover easily codified functions such as accessing balances, producing statements, opening accounts, closing accounts, trading, and money transfers.

This provided some benefits to firms as well. By allowing websites to provide self-servicing functionality, it allowed firms to reduce staff levels on call centers or to ensure staff was focused on the functions that cannot be codified, for example: dealing with deaths or very complex client queries.

2. However, there was an interesting development that was not predicted at the time. The Web allowed new more entrepreneurial and aggressive entrants to enter the financial services market by offering new and/or better functionality. This was good for the customer because it created increased and better products and services and products for them. However, it was the first time in many years that there has been a serious challenge to the existing firms within the industry and many of these existing firms were caught “flat-footed” and were slow to react. For example, in 1998, PayPal was launched which offered a new, convenient and flexible method for making payments, and in 1998, the Egg Internet Bank was launched in the UK. It took some of the existing players at the time several years to react to this.

This entrepreneurial spirit also allowed many other new products to be developed. In 2003, Chip and PIN was introduced in the UK for safer and easier payments, and in 2004, card spending in the UK exceeded cash for the first time.

3. The final perk for this technology was easier communication. The Internet allowed standardized e-mail, video, instant messaging, secure messages, and file transfers between firms. This improved efficiency and reduced costs.

1. The already complex technology infrastructures (see Stage 2) were becoming more and more complex. On the top of the existing stack of different technologies, various supplier/in-house packages, and a mesh of integrations, a mass of new components needed to be added. This covered the infrastructure to support Internet connectivity, technology to support various websites as well as software integration links from the websites to “back systems” for processing requests (such as account opening). This infrastructure needed to be supported and maintained by a costly set of staff covering many different skill sets.

However, as firms built websites they have opened up their technology infrastructures to the world. This creates a new type of risk called Cyber. This risk typically relates to any outage, disruption, financial loss, or reputation damage caused by a problem with its technology infrastructures. Specifically, this could cover (a) accidental and/or breaches of security, (b) system outages due to system problems or poor design, (c) somebody deliberately trying to access (or hack) into the system, and (d) somebody trying to steal data. Furthermore also because of the 24 hours-per-day nature of the websites then need full resilience and business continuity processing to cover outages. If a website is unavailable then customers cannot access their details. This type of outage is very visible and can damage a firm’s reputation. Therefore, firms need to implement controls and checks to manage these types of risks.

Therefore, the result is that these technology infrastructures are now unbelievably complex and firms must implement processes and governance to manage the technology infrastructure and the risks associated with it. As mentioned earlier, firms are looking to use formal standards such as ITIL to help with this.

Also as mentioned earlier, these technology infrastructures were becoming more and more complex to change. Any change is a complex process and will need to manage carefully. These challenges help with the rise of standards around Release Management.

2. Similar to the point noted under Stage 2 above, there is often an issue with social acceptance. Despite the benefits the Web offers, people are still nervous about using new technology. This was especially common with online servicing because people were nervous about their details being stolen which in turn made them susceptible to fraudulent transactions. Therefore, it does often take a while for new technology to become mainstream.

3. Finally, several clients do not like the loss of personal contact. While they feel the self-servicing over the Web is useful, they will look to speak to a human about their affairs. They feel nervous about providing confidential details to a “screen” without feeling comfortable with what the “screen” is doing with their details. Also, not everyone must have access to the Internet or World Wide Web. Consequently, firms need to ensure they have a personal element to the client servicing.

1. Firstly and at the most obvious level, several new distribution methods have been created. The existing web channels have been improved significantly but firms have created sophisticated applications (or “apps”) for hand-held devices, smartphones, wearables, and tablets. These apps need to provide all the instant functionality demanded by the majority of customers. For example real-time balance inquiries, real-time transactions, and so on.

2. Also, these improvements in technology have allowed new innovative ways to be implemented to support existing needs. One area of particular note relates to payments where there is several new entrants have implemented products to try and improve the entire payments process. These new entrants are either existing technology firms looking to move into financial services or start-ups driving to push innovation. For example, Apple-Pay, Google-Pay, or Smile-to-pay.

3. Further to the above point, the developments in technology have allowed innovations to be implemented. In 2009, the first version of BitCoin was implemented (and this is discussed more in Chapter 11 below). Also, several crowdfunding services have been launched which allow start-ups to obtain funding quickly and directly from investors without having a bank or some other financial firm in the middle.

4. Finally, there has been an increase in standards to the point that the financial services industry can generally say it is open. The new Open Banking standard is a new technology standard that makes it easier to create interaction between banks regarding moving accounts, supporting other providers’ products, and so on. The Open Banking standard will make it easier for new entrants to enter the industry. Likewise, the Banking as a Service platform has made it easier for organizations to launch “neo-banks” or digital banks that have emerged based on improving the customer experience.

1. For legacy or existing firms, the complex technology infrastructures (discussed in Stages 2 and 3) are becoming more complex to the point that it is hard to comprehend them. They consist of an interconnected set of different technologies, various supplier/in-house packages, a network of integrations, Internet connectivity, technology to support websites (including links to back end systems), and, now, further technology to support hand-held devices, smart phones, and tablets. Apart from the cost, staffing, and governance required to support this, the risk level (especially Cyber Risk) has increased dramatically.

2. While any new entrant will not have the issues that the legacy firms have, they will still need to build a complex technology infrastructure to support their products and clients. They will need to ensure that have the relevant staffing, governance, and risk management controls in place.

3. Consequently, Financial Regulators are now starting to take a real interest in how firms manage, govern, and oversee their complex infrastructures, especially in the areas of operational resilience (i.e., how do firms cope with outages), the management of suppliers (i.e., do firms have sufficient legal contract clauses over suppliers to ensure they perform what they have committed do?), how data is protected (i.e., to stop data breaches, etc.) and ensuring firms have named individuals who are responsible for all aspects of their business.

While these regulations are still being finalized, it is clear that failure to comply will result in severe penalties such as fines, termination of licenses, and individual criminal prosecutions of named individuals who are at fault.

4. Again similar to the above in Stages 2 and 3, there is always an issue with social acceptance of new technology. Despite the benefits of mobile computing, people are still nervous about using new technology. As noted earlier, this was especially common with online servicing because people were nervous about their details being stolen and therefore making them susceptible to fraudulent transactions. Therefore, it does often take a while for new technology to become mainstream.

5. Also, some individuals and demographic groups are nervous about using new entrants and would prefer to stick to the “tried and tested” firms. This is something new entrants need to manage and overcome.

6. Again as noted in Stages 2 and 3 above, some clients do not like the loss of personal contact. While they may like self-servicing using their phone they would still like to speak to a human about their affairs or at least be comfortable that they can speak to somebody if they want to quickly.

7. Also, not everyone will have access to hand-held devices, smartphones, and tablets, and (per above) some prefer “face-to-face” interaction. Therefore, firms need to ensure they have a personal element to the client servicing. This is particularly true for firms’ older customers who are sometimes uncomfortable with technology.