Financial services “marooned” from tech advances

Banks and financial services firms are still being plagued by legacy IT decisions, according to Paul Taylor, CEO of banking software firm Thought Machine.

“Financial services has taken a different path in tech over the last few decades. In hindsight it hasn’t been a good choice. While the rest of the world was going open source, moving to Python and newer coding languages, financial services remained isolated, monolithic and relying on big releases. In the tech world we do continuous deployment, releases every week or every day.

“It feels like financial services has been marooned a little bit in terms of the tech culture and the way they do things. It’s also difficult to get from where they are now to where they should be.”

According to a November 2018 Accenture report, 40% of C-level executives at global retail banks have agreed on the basic principles of cloud banking, and have begun to implement tools. 57% stated that cloud-based software was in use and critical to their operations, or that they were handing more responsibility over to outsourced platforms.

In terms of budget, 34% stated that their existing cloud spend is between 1-5% of the entire IT budget. 46% of respondents said that they were planning to allocate between 11-15% of all IT spend to cloud-based services and platforms by 2022. A third said they were already allocating that figure.

“Most banks are keeping their core banking system and then digitizing other layers and the services around them. Of course, that is better than just keeping it the way it is. Customers demand an online presence and a mobile presence. That is the main channel for banks now. Branch banking is not as common.

“The thing is that it can only go so far. The problem is that if the core of the bank just ran the core – mortgage payments and the rest – you’d be fine. But it doesn’t take long before a user-facing journey or problem actually hits the core.

“As soon as you stray from ‘add money, spend money, look at my balance’ then problems begin to appear, and it doesn’t take long for the user experience to be disrupted.”

From the bank’s perspective, says Taylor, the core is very expensive to run, and even the smallest change can require extensive investment.

“If we look at something like strong customer authentication (SCA) it requires that banks be more secure, implement things like biometric ID and two factor authentication (2FA). These are great changes, but in a large legacy system there will be a separate mortgage platform, credit card platform, and savings platform. There might be dozens of different ways in which you can authenticate yourself, so this seemingly innocuous change actually requires huge levels of replumbing inside the bank.

“When you start adding up the costs of this, it can cost as much as £50m or £100m just to implement one feature. So, in that way just leaving the core where it is can create an awful amount of pain and unnecessary costs for the bank.”

In a world in which customers demand 24/7 service, says Taylor, banks are struggling to complete technology switches which used to serve them well in the past. “If you look at the large UK banks or large international banks they have done large rip and replace, usually for brands. Bank A acquires Bank B and then over a period of years completes a migration project and then over a weekend moves everybody from B onto A.

“That still does happen, but it’s a lot harder now as you used to be able to turn the bank off at the weekend. When you had 48 hours you could turn things off at 6PM on a Friday and have a good stab at it.”


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