Inefficiencies and inadequacies - the tricky, techy truth

Our banks run on enormously complex IT systems. This is not new information – much has been said of the challenges facing banks as these archaic systems struggle to answer the pressures of a modern banking industry. After all, most banking platforms were developed in the 1960s and 1970s – consider how consumer technology has evolved in this time and it seems inconceivable that our banks would still be using such outdated IT!

This cumbersome technology, combined with decades of M&A activity has created a tangled IT system rife with inefficiencies.

There are a number of negative business impacts of inadequate IT systems:  from slow time-to-market for new products, increased risk and higher upgrades costs. It’s clear that poorly designed systems can damage a bank’s ability to compete in a modern financial market.

This issue, which has long been on the radar of banking IT teams, has recently been pushed up the agenda, in light of the emergence of new players in the financial services space. While the likes of Google, PayPal and Zopa may have claimed only a small part of the market to date, their popularity illustrates growing consumer trust in non-bank brands – and significantly for IT managers, these companies are not burdened with the half-a-century old systems which are used by many high street banks.

What’s more, inadequacies will ultimately impact the customer. A recent report (16/10/2013) from The Times of India newspaper summarised the impact of operational inefficiency on the Indian banking system, looking at the cost to consumers – ‘In 2012, Indian banks' relative operating cost was higher than that of the UK [banks]. Despite this, Indian banks' profitability was higher [than that of UK banks], indicating customers picked up the tab for inefficiencies’

It is unsurprising then, in the dawn of heightened competition and greater customer trust in new players, that a gradual replacement of core banking systems r is predicted to pick up again in coming years, as institutions seek to improve their ability to compete in the new dawn of banking. My one word of warning? Replacing a core system with another that fails to address the key issues of lack of interoperability – and at an eye-wateringly high cost – is not going to solve the issue in the long run. What’s needed is a holistic approach, taking into account more modern approaches to IT infrastructure. I predict that empowered Enterprise Architecture will be the primary tool for the transformation of IT systems going forwards, and I look forward to seeing how the industry responds to this development.