Combatting Mounting Technical Debt: A Guide for Banking and Finance Enterprises

As we have witnessed in the last 18 months, it is impossible to foresee what technologies a company will need in the future. The pandemic is a testament to this, as the world saw digital transformation happen at a rate never seen before. 

With a drastic rise in digital banking, the financial industry was one of the most prominent sectors to experience rapid change, finding themselves being forced to digitalise their business operations sooner than originally planned. In fact, Deloitte noted in  their 2021 Banking and Capital Markets Outlook that COVID-19 “not only accelerated digital adoption, but it has also been a litmus test for banks’ digital infrastructures.” 

As such, with this growth and new focus, CIOs of financial companies around the globe are now facing the consequences - namely, how to solve mounting technical debt as a result of adopting new technologies last-minute. Enterprise Architecture - the conceptual blueprint that defines and organises the structure and operation of organisations - can play a key part in solving this issue. 

What is technical debt?

Technical debt is the implied cost or interest of adapting an additional solution or “last minute” technology into business operations. It is borrowing against a future effort by opting for a convenient - but perhaps not fully ideal - solution in the short term. Naturally, a company will have to pay back the effort with interest. 

Technical debt has been a factor in software development for decades. It holds a strong influence on a firm’s general technology infrastructure and was originally stated to be a short-term development choice. However, where the pandemic saw technology demand evolve at a faster pace than ever before - and companies needing to implement new tools in order to adapt to unprecedented circumstances - costs quickly spiralled in poorly-navigated, panic-buying fashion. 

This phenomenon has expanded to a variety of sectors, including the financial and banking industry. According to EY, the financial sector received a lot of pressure to go digital in recent years, with fintech companies overseeing a 73% rise in banking applications in Europe in 2020. Banks were pushed by investors to digitalise, leading to a lot of finance companies taking on last-minute technology solutions.

According to John Duigenan, the CTO for Financial Services at IBM, technical debt is costing banks agility and innovation. This is because the longer a bank has ongoing technical debt, the less likely it will be able to quickly react to unforeseen situations.  When banks become less agile, they are less able to innovate code and therefore are more vulnerable to cyber security attacks. Plus, addressing these breaches heavily decreases the development budget, meaning all organisations can afford to fix emergencies rather than spending money on designing new capabilities.

Adopting last-minute technology choices can sometimes overrule the initial benefits gained. This is due to last-minute technology choices which - although they will benefit the organisation in the short-term - may lead to the accumulation of long-term technical debt. This can also result in technical debt that grows over time, creating a domino effect that companies have to deal with as quickly as possible. For instance, increased technical debt adds to the complexity of software, making it more difficult and expensive to support and develop further. As companies often prioritise the need for speed and tend to want quick, short-term solutions, they frequently find themselves with unexpected technical debt that they were not prepared for - ultimately making the situation worse.

Since no firm is able to predict the future and clearly see what they should or should not invest in, firms might fall into unpredictable debt. This is often caused by budget challenges, as even a company CTO lacks the power to unilaterally increase the funding available to them. Making fast decisions is enough to begin generating a hefty amount of technical debt. McKinsey estimated that technical debt equates to 20-40% of companies’ technical estate, while Gartner predicted there is now around $1 trillion of global IT debt.

That said, it does not mean businesses should avoid technical debt altogether. Rather, companies need to ensure they have a clear plan and methodology set in place in order to avoid technical debt piling up over time. 

Technology road mapping and EA’s role

Research by Google found that Google software engineers with high technical debt were 1.6 times less productive, while Gartner discovered that business leaders who actively manage their company’s technical debt will achieve 50% faster service. This is why it is crucial for enterprises to be ahead of the game and try to avoid growing technical debt, in order to be as efficient and productive as possible. 

Enterprise Architecture (EA) can step in to help lessen the pressure of technical debt. CIOs of finance companies can make use of application and technology roadmaps, supported by EA, to plan and manage the removal of technical debt. Roadmaps communicate and influence change, earning buy-in from key stakeholders and providing a plan of action to achieve goals. In this instance, this refers to the removal of redundant technologies and data.

To create an effective technology roadmap, a company needs to know about the current state of their technology landscape, as well as the target state they are looking to achieve. While defining this many years into the future may be difficult to do, it is practically impossible without fully assessing the current setup. Many roadmaps are held up due to the lack of understanding of what technologies and applications a business currently uses.  Companies need to have a high awareness of their technology and application portfolios in order to illuminate technical debt. 

According to McKinsey, financial firms have successfully developed a method to measure the complexity of technical debt through EA and are able to identify when technical debt is expected to arise. By linking this method to the company’s overall financial performance management, finance companies can ensure technical debt is taken into consideration when making business decisions. This is also done by reworking formal practices and methods, such as by amending costs to display what technical debt a company is collecting and will have to pay as interest. 

EA is the best tool to help businesses achieve greater technical awareness, clearly mapping out a blueprint of the business and creating a single source of truth for applications, technologies, data flows, and their life cycles. This roadmap will help identify potential risks of technical debt so businesses can be more prepared.

The bottom line

Technical debt is inevitable in today's constantly evolving environment, and companies including financial businesses must act quickly to adopt the most relevant technology systems to be as efficient and productive as possible. As a way to ensure that technical debt does not pile up and cause unnecessary stress for an organisation, CIO’s of financial and banking institutions would benefit from implementing Enterprise Architecture and road mapping to help minimise  any potential tech debt possibly experienced in the future.