Banks and fishermen have one fear in common; tangled lines. Fishermen stand to lose a catch if they don’t take care of the tackle they rely on, whereas banks stand to lose money and data if systems are tangled and in disarray.
Banks have been sailing on rough regulatory seas recently, with regulators and politicians alike calling for them to upgrade their IT systems. Most banking IT systems are a Frankenstein’s monster of new and ancient technologies bolted to an infrastructure that was built 40 years ago. New add-ons, which offer customer experience through social channels from one provider, try to work in tandem with the legacy system from another. This results in disjointed communications.
Customer and other critical business data is often kept in siloed systems. These systems have a hard time communicating with front-office systems which provide customers with product interfaces because they are hard-coded and any added interface takes a long time to implement. The disjoint between these two systems means that real-time account information can’t always be shared or used efficiently.
New implementations can take a long time, this means there is a lack of agility in the way the bank can function. Ultimately the tangled web of IT systems struggle to allow banks to react quickly to any market changes. This inability to react trickles down to the customer and what can be offered to them.
Banks know this disjoint exists, making it harder for them to provide customers with the real-time data they require, to make informed decisions on their financial accounts. There is an unwillingness to update these legacy systems, not only because it’s a massive undertaking in terms of the size of the infrastructure that needs to be updated, there is also a lack of proven success stories, but also because it will cost a substantial amount in terms of investment.
There is also the question of when banks enter planned outages, which will affect revenue across all streams. This was displayed by Kasikornbank in Thailand, who had a two day outage during renovation works on its core banking IT systems. This measure, which seems drastic, was to mitigate the risk during a historically troubled conversion process.
These legacy systems are a worry for the industry, which could lose a lot as a result of customer churn, if it doesn’t keep up with the developments in technology. The current method of upgrades and maintenance evolves around spaghetti code because seasoned IT professionals are under time pressure to deliver new services that their marketing colleagues want. The imminent rollout of Internet of Things devices will also add extra burden on the aging IT systems.
Banks are looking to implement sensors wherever there is a transaction taking place within connected devices. Take connected fridges for instance, when the fridge makes a purchase for the household, that transaction should take place through the account you hold with your bank. These connected instances put more stress on legacy banking infrastructure which would have to support these transactions.
What would this unwillingness to update systems mean for banks in the long term? Although the high street giants are established through their combined centuries of service, new challenger banks are making a play on the market. These challengers, who can start from scratch with their IT systems, will have an upper hand in terms of providing customers with the service infrastructure they would require. Some of these challengers, like Atom, plan to be digital-only entities, providing customers with the services they need, online.
This is particularly appealing to millennials, who have become disenchanted with the traditional retail branch bank experience. They would be more willing to move to digital-only banks because they are used to going online to shop, socialise, and consume content. Better interest rates and lower borrowing costs provided by some of these digital banks, which they can afford because of the lack of branch overheads, are appealing to these digital natives. Some sixty eight per cent of the generation in a study by The Millennials Disruption Index believe in five years the way of accessing money is going to change, and seventy per cent think that payment methods will be totally different to what it is today.
Unfortunately, some banks are falling behind in meeting the needs of their customers in terms of what they require from the services the technology provides. Customers are also acutely aware that failing legacy systems are causing bank IT systems to crash under the pressure of individuals using online services at the same time.
The benefits banks can reap from implementing upgrades to their systems would be significant. Not only will the tangled web be reduced, as will its effects on the way the system functions, but the customer service delivery will also be improved. When banks upgrade, they will be able to react to the market changes more quickly because the underlying infrastructure will be robust and agile enough to allow for new additions to the IT system.
The most important question for banks will be how to upgrade their existing architecture within budget and on time. This is where a banking middle-layer can help. By implementing a middle-layer infrastructure, which facilitates the communication between back and front-office systems, they will see marked improvements to the way the business will function.
This middle-layer will be able to provide a more reliable infrastructure to build a business on, and by pooling customer data together from various front and back-end systems, banks will be able to provide customers deals based on their needs at a very particular time.
Not only will there be a competitive advantage to updating legacy systems when customers realise that banks are doing all they can to provide the best-of-breed service. Less bank service outages and the knowledge their data is being used to give them the best deals will excite and put customers’ minds at ease. The development of new technologies will also allow customers to access the data through multiple channels, such as social and biometrics, providing them with a holistic banking experience.
Madhur Jain, global head of resales, SunTec