New Banks and Old Systems

For high street banks core system renewal is the problem that just won't seem to go away. Costly to renew and volatile when upgrading, the monstrous technology that underpins the financial services industry is an ongoing conundrum for banking IT architects. For a long time this was an issue that impacted all banks, creating an even playing field of banks shackled by their systems, all struggling to answer the question of how to renew a whole legacy system without starting from scratch. Now though, the pressure is on to find a solution, writes Hans Tesselaar

For high street banks core system renewal is the problem that just won’t seem to go away. Costly to renew and volatile when upgrading, the monstrous technology that underpins the financial services industry is an ongoing conundrum for banking IT architects. For a long time this was an issue that impacted all banks, creating an even playing field of banks shackled by their systems, all struggling to answer the question of how to renew a whole legacy system without starting from scratch. Now though, the pressure is on to find a solution, writes Hans Tesselaar

The retail banking market is undergoing a period of change unlike any seen in the past century. High profile challenger banks, such as Marks & Spencer, Tesco, ING Direct and Metro Bank, have entered the market, shaking up the status quo and proving to be quite the competitors – in part thanks to their improved customer service, more innovative offerings and competitive pricing, all of which are greatly supported by the fact that these new players are unhindered by the creaking legacy systems which restrict traditional banks. They are the new banks on the block and they bring with shiny, new IT systems.

The truth is that traditional banks are under real pressure – customer loyalty is at an all time low and consumers are increasingly demanding access to more digital banking experiences, making these new players seem like the perfect antidote to the long-established characters of banking. This is why now, more than ever, banks need to be concentrating efforts on innovation. Yet recent statistics from Intellect show that at present only 4% of total bank IT budgets are being spent on innovative non-regulatory changes and upgrades.

The problem for many banks is that, when an opportunity to gain ground over competitors has been identified, actually moving to make the most of it can be difficult – slow and clunky IT legacy systems slow down speed to market, which subsequently marks the difference between profit and loss on a new project. Propriety technology was once seen as a competitive advantage – nowadays, it’s more likely to be weighing banks down.

The emergence of new banking players doesn’t need to signal the end for traditional banks, but it should act as a call to action – changes need to be made to core systems, and these changes need to be made sooner rather than later. Some bold moves are needed here!

My personal belief is that the industry-wide adoption of open banking IT standard is the key to helping banking players reduce their IT costs and improve flexibility, ultimately helping improve bank ability to compete with the new banks on the block by leveraging their own systems combined with new and innovative "of the shelf" products.