Where the bodies are buried - tales from the front line of banking IT

As the UK banking industry struggles to shake off the harrowing memories of 2008’s credit crisis, and 2012’s mis-selling scandals, some have returned to profit with a vengeance. However, even as the industry tries to convince the...

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As the UK banking industry struggles to shake off the harrowing memories of 2008’s credit crisis, and 2012’s mis-selling scandals, some have returned to profit with a vengeance. However, even as the industry tries to convince the British public it is on their side, few institutions have escaped the curse of the IT outage. Many of these incidents have been severe enough to have a real impact on customer experience and trust.

In some well-publicised cases, this is a hangover from the bad old days, when investment in technology was sacrificed on the altar of ever-increasing profit, but very few of the established banks in the UK can claim to have invested in IT infrastructure as intelligently as they ought to have done.

Given the trauma of recent years, this is perhaps understandable - bank CEOs have had bigger battles to fight - but the day of reckoning cannot be delayed for ever. Banks must now face up to the need to upgrade IT systems that, in some cases, are still based on infrastructure from the 1970s.

For ambitious CIOs, a large bank is one of the top appointments in the world. Keen to leave a legacy, and aware of the huge positive impact that upgraded core IT systems can have on the bank’s services, it’s easy to understand why CIOs are attracted to the idea of total core IT replacement projects.

However, in our work at SunTec, we have come across many situations where a bank has attempted a wholesale overhaul of its core IT systems and the benefits have been either much less than were expected, or completely non-existent. For example:

  • One of the biggest banks in Europe has been trying for two years to gain value from its core banking implementation project, and this project has cost over 50 million pounds to date.
  • Another of the larger European institutions spent over 40 million pounds on a project which dragged on for so long that the strategic plan it was meant to fulfil expired, so the entire project was abandoned.
  • An even more egregious story of waste comes from APAC, where we know of one bank that spent a nine-figure sum in an attempt to replace its core banking systems. Nearly half a decade later, the project is still not complete.

These are not isolated incidents, nor are the sums involved insignificant, even by the standards of global banks. Whether the product of wishful thinking, or simple over-promising by consultancies and systems integrators, what’s clear is that
the problem of outdated infrastructure is too complex to be solved by simply throwing money at it.

Even in a global context, there are very few examples of banks having successfully replaced core banking systems in their entirety. Where it has been unsuccessful, it has consumed an often astonishing amount of capital and, in some cases, has provided no tangible return to the bank itself. In an era of increased capital requirements, regulatory sanctions and stratospheric executive pay deals, these are funds that banks can ill-afford to squander.

These losses are visible to shareholders, but they are given little or no attention by the press, in comparison to scandalous bonuses and ‘banker-bashing’ regulations. What’s often left unexamined is the fact that modern technology has not only outstripped the antediluvian underpinnings of many of these bank’s IT systems, but it has actually outstripped the need to replace them

Advanced virtualisation and middleware technologies mean that agile, customer-friendly services can be overlaid on the top of legacy systems without the need for total replacement. This allows the marketing and product management teams to cater properly for the needs of the bank’s customers, including by implementing the sort of individualised, relationship-based pricing structures that telco customers have benefitted from for years. Once the immediate need for wholesale change is gone, the underlying legacy systems can be replaced in a slower and more achievable fashion.

It may not be as glamorous as wholesale core IT replacement, but the best legacy a CIO can leave at a bank is the means to quickly develop and implement customer-friendly services, while effecting an incremental upgrade of core IT. More widespread adoption of this pragmatic approach would save the financial sector a great deal of money and speed up the adoption of consumer-friendly services across the industry.
Posted by Nanda Kumar, CEO SunTec, the transaction management specialists

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