Antiques and aeroplanes

August 16, 2016

Santiago, Chile


It started in 1946.


American Airlines, then the largest airline in the United States (and second largest airline in the world after the Soviet Union’s Aeroflot) created a bold, new technology to book flight reservations.


They called it the “electromechanical reservisor”, and it was the first machine of its kind.


Before the reservisor, American Airlines employees booked all reservations by hand using index cards and lazy susan filing systems.


Needless to say, the manual system was prone to substantial human error, and airline executives were keen to automate the process.


They went through several iterations of the technology until, in 1964, they completed the largest non-government data processing network in the world.


It was called Semi-Automatic Business Research Environment, or SABRE.


With its IBM 7090 mainframes, the system was able to process tens of thousands of tickets per day, pushing up-to-date seat inventory to more than 1,500 ticketing agents across the country.


Within the next several years, most major airlines (including Delta and United) followed with their own booking systems.


Fast forward a few decades, and those systems from the 1960s still form the core technology of airline reservation systems today.


Sure, they’ve managed to put on a few fresh coats of paint, building new websites and mobile apps to keep pace with the 21st century.


But deep down beneath the digital veneer, airlines are plagued anachronistic technologies that are barely held together with constant patches and reams of duct tape.


This is ultimately what caused Delta’s ignominious flight outage last week.


It’s also what caused American Airlines flight outage in late 2015. And 2013. Plus United’s 2015, 2011, and 2007 outages. Etc.


It raises the question– since old technology breaks down so easily, why not just start over with new technology?


It’s because these airlines are so dependent on the old technology that to completely replace it would mean having to press PAUSE on their entire businesses for weeks and weeks.


They’d have to ground all flights and cease making any new reservations while they replace the networks, migrate the data, retrain staff, test the system, etc.


For airlines that operate around the world 24/7, that’s an impossibility.


So, with their hands tied, they keep moving forward with patches and minor updates hoping to stave off technological catastrophe just a little while longer.


Here’s why I’m mentioning this today: it’s not just the airlines.


Nearly every legacy industry in the United States (and most of the West), including the electrical grid, nuclear, etc. runs on similar antiquated technology.


It’s the same with banks.


Retail banking is essentially a complicated assortment of accounting ledgers, and the technology that banks use to keep track of it all is called their “core software”.


Whenever you make a deposit, withdrawal, or account transfer, the bank’s core software updates your account and all the various accounting ledgers.


Thing is, some of the most popular core software platforms (like IBM’s AS/400) were introduced in the 1980s, way back before the digital revolution.


In other words, the most important financial transactions in our daily lives are driven by 30+ year old technology that’s no better than the original Nintendo Entertainment System.


Just like the airlines, this fragile patchwork of outdated technological platforms is prone to failure. Or being hacked.


Banks fortunately have a lot more money to throw around (namely your money, and my money), so they are able to recruit and retain very high quality IT talent to keep kicking the can down the road a little while longer.


But it does provide yet another major reason why banking, at least as we know it, isn’t going to exist in another decade.


Right now, at this very moment, all the tools and technology already exists to completely eliminate the need for banks.


Every single function of a bank, from deposits to lending to money transfers, can be conducted better, swifter, and cheaper outside of the banking system.


You can send money across the world, exchange currency, buy stocks, borrow money, etc. with a couple of apps and websites now, all without having to go through a bank.


Blockchain, social networking, and the shared economy have changed everything in finance, and the companies that bring these concepts to consumers are rocketing ahead.


Western banks, which are sorely lagging behind with their antique technologies, have absolutely no chance of catching up.


So while they may be able to kick the can down the road for a few more years, the long-term trend is pretty clear.


Banks are dying. And this not only has big implications for your savings, but also for your business and investment potential… because there are tremendous opportunities for anyone who focuses their capital and talents ahead of these big picture trends.


Until tomorrow,

Simon Black