Bank interoperability: Work together to cut costs

With the G20 meeting this week and the European banking industry coming together at Euro Finance Week on November 14th – 18th, the woes of the industry will no doubt be discussed at length. While issues of debt and lending hog the headlines, we must be careful not to lose sight of the importance of the infrastructure on which the banking industry is built.

IT spending within banks became a Board-level issue in 2008, followed by a period of IT spending cuts. However banks are once again investing in IT infrastructure – just this week we have seen Nationwide announce that its tech overhaul project is gathering momentum, and Mizuho Trust & Banking’s implementation of a new treasury management system

However the difficulties we have come to expect with obsolete software, high integration costs and the limitations in our choice of off-the-shelf software are no longer seen as just a nuisance for financial institutions making IT changes

These challenges affect an organisation’s speed to market and can make the difference between profit and loss. As we know, time is money, and if banking infrastructure is not flexible enough to adapt rapidly to changing market needs, banks risk losing market share to their faster-footed competition.

Off-the-shelf software, while cheaper upfront, once purchased has to be integrated into an organisation’s existing IT infrastructure. In large organisations, integration costs make or break the business case in the deployment of new functionality and purchased packages. The cost level is determined by the degree of standardisation of the bank’s existing application landscape and the underlying interfaces. The integration process requires time and money. In fact, our experience is that integration costs are often at least triple the purchase costs of the original software.

With newly imposed regulations and cut-backs, it makes sense for banks to adopt universal standards for application infrastructures. By increasing flexibility and reducing integration costs, banks will save money which can be passed on to customers in improved services, at lower costs. Furthermore, given the current climate and taxpayer animosity towards banks, customers are looking to entrust their finances to banks which appear to be actively committed to finding new efficiencies and offering better value for money.

Cost reduction is only one of the benefits of standardised bank interoperability. In my next blog, I will consider the benefits of value-added services which banks can achieve through interoperability.