Chris Skinner, thefinanser.com, and John Rakowski from AppDynamics comment on the current state of play of IT in banking; from budgetary concerns to the increasing relevance of mobile applications. Does the financial sector have a grasp on IT? More importantly, will banks ever have a grasp on it?
I met a large bank’s CIO the other day who was told to reduce his IT budget for 2016 by 40%. He was a bit upset. And asked me if I had any ideas. I had a few but it’s a tough ask, especially when most banks IT budgets are exploding. According to Celent banks in North America, Europe and Asia-Pacific are expected to spend a whopping $196.7 billion on technology in 2015, up from $188.1 billion last year, so how do you spend less in a market that is spending more? And why would you spend less in a market that is spending more?
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Well, there’s possibly a good reason for setting every bank CIO this challenge, as most bank investment is in keeping the lights on. It’s keeping the old systems going whilst investing in new systems. McKinsey calculate that the average bank is spending 10% of its expense on just operational costs, and this is higher for banks that haven’t rationalised their technology. These costs only get higher for banks that are layering new technologies on top of old. This harks back to my continual call to change old core systems, as many banks’ investments in digital are just layering legacy upon legacy. The more legacy, the more cost. The more legacy, the less flexibility, the harder to change.
Setting an example
It all adds up and soon creates a desperate need to break out of this cycle. Although that’s not easy, it can be done. Again I’ve given many examples of banks that are doing this, but my favourite is Commonwealth Bank of Australia (CBA), mainly because they switched to Infrastructure-as-a-Service (IaaS) and saved 35% of their operational costs per annum as a result. For those who haven’t heard that story before, the CIO presented to the Executive the idea of moving to Cloud services and had the plan rejected because "the regulator would never approve it".
At the next Executive Committee meeting the plan was presented again, and the Board rejected it again. The CEO then asked the CIO why he brought the same plan back to the meeting, when they made it clear that they had to reject it because the regulator would reject it. At this point, the CIO introduced his friend from the Reserve Bank of Australia, the regulator, who said that not only would they approve the plan, but that it was a great plan.
CBA moved all their internal mess of processors to IaaS and are now the most agile and innovative bank in Australia. In fact, they’re one of the most innovative, respected and agile companies in Asia, winning awards here there and everywhere, and provide customers with leading-edge banking products like Kaching!, Tap&Pay, Pi, Albert, Lock Block Limit and more.
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By GlobalDataSo if I meet a CIO who wonders how to save cost, I use this as my benchmark example. Not only can you save cost through cloud, but you can become far more agile in doing so. It just takes leadership, pragmatic change control management and guts to make it happen.
For these reasons, I would urge every CEO to challenge their CIO to cut IT costs by 40%. After all, it might just be enough of a push to get that core system replaced and become far more agile in the process.
Accenture surveyed 25 senior banking executives from across European banking organisations. Three quarters of respondents felt their banks have a "fragmented or opportunistic" approach to dealing with digital innovation.
Furthermore, the report details that 40% think the time it takes their organisation to deploy new technology is too slow. This is noted as negatively impacting organisations’ ability to realise value.
The majority are reported to believe that the banks lack the "skills and culture needed to succeed in the digital age". This state of play is contributing to the rise of challenger banks across Europe.
Given growing competition in the retail banking sector, online banking services must meet the highest standards of performance and reliability, regardless of time, location or device.
To achieve this, banks must ensure 24/7 access to key services, whether it be through proactively predicting when their applications will experience surges in traffic or spotting and fixing emerging glitches in real-time, before they impact experience.
Although it could be argued that technology problems of some kind will always occur, organisations must ensure they have end-to-end visibility of their digital transactions in order to identify and repair performance glitches as quickly as possible.
Without this, banks are often looking for a needle in a haystack. For example, RBS took over two days to solve their problem which is far too long for out-of-pocket customers.
Apps are important
Crucially, CIOs will also need to think more about the performance of their applications and the experience they provide if they are to remain relevant. Application Intelligence and performance monitoring solutions will be even more necessary if other organisations are to follow suit.
The solution
Providing perfectly-performing mobile services that can deal with millions of transactions a day relies on complex, distributed applications working seamlessly.
It’s made harder still by the added complexity that comes from managing the mix of the requisite software, hardware, cloud services, app developers, third party web services and so forth.
All this, piled on top of the antiquated legacy IT systems that many traditional banks have accumulated, makes for a high risk situation that neither challenger nor traditional banks can afford.
APM (Application Performance Management) solutions give online financial services certainty about the operation of their business, IT infrastructure and applications in real-time, and enable them rapidly respond to, or even predict, issues that may arise.
The digital-only Atom Bank might just be what Britain needs, so perfect performance will be imperative in a software-defined age where digital dispensation is never given on loan.
