Banks aren’t spending enough on IT

As the news broke before Christmas of yet another banking systems failure, which prevented customers from accessing their money and paying for goods, so did the argument that the main reason behind this proliferation of banking tech disasters is years of severe underinvestment in IT.

“Sorry sir, the computer says no!”

RBS boss Ross McKewan came out and said that the problems they have been experiencing have been down to underinvestment in underlying technology, which they are now trying to turn around. They know that these issues are seriously inconveniencing their customers, who will go elsewhere if they don’t get a better service. But RBS is no different to any other retail bank. All have suffered IT issues that have caused disruption to services. And it happens in the banking industry more often than most.

Apparently gross under investment in IT infrastructure is endemic in banking. Ovum research from 2012 said 75 per cent of European banks are using outdated core systems. Respondents complained that lack of skills and resources mean that core systems are really difficult to replace. This is partly due to what’s happened in the banking industry over the last thirty years. Banking tended to be very regional back in the 70s and in the 80s and 90s the industry became very acquisitive, with a handful of big high street players emerging. As a result, rather than having a single streamlined infrastructure, banks are generally made up of multiple legacy systems, which all hinge the operational running together, making the environments massively complex and difficult to maintain.

This means that more things are likely to go wrong. For example, if a bank implements a software upgrade, the software has to be updated across multiple legacy systems, many of which are interdependent. This increases the likelihood of a lapse in quality assurance and therefore the risk of defects.

The pace of technology adoption has also added massive pressure to the CIOs of banks. Customer hunger for receiving banking services on new devices is driving the need to implement mobile banking apps, digital wallets, new payment systems etc. And this focus on new technologies means there is less time and resource to focus on core systems.

But the fact remains that banks can’t go on operating in this way. They need to have the right technology in place, the right quality assurance strategy to protect themselves and their customers from tech disasters. Failure to do so will see them lose market share to more efficient operators.

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