What are the causes behind recent IT failures within high-street banks, and what can they do to combat them?
Banking these days is easy, isn’t it, now that we don’t have to go to a branch in our lunch breaks to make transfers and payments? All these apps have made life ever-so-simple and we hardly even think about it. Pay the rent? Done in a couple of taps and a swipe. Transfer money to someone? All you need is their phone number.
But, as with most new technologies, for many these new facilities have morphed from wondrous innovation to the new normal in no time at all. We don’t give much thought (if any) to what makes these systems work. And as with all technology, we love to complain when it stops working. We rail against slow internet connections without stopping to consider the wonder that it exists at all, and without a thought about the vast and creaking infrastructure that pipes all that lovely data into our homes and offices.
Outdated IT systems struggle to cope
And so it is with banking. Witness the recent IT failure at RBS, which saw some 600,000 payments go missing for a couple of days owing to a ‘technical glitch’, including customers’ pay checks and benefits payments. The surge in computer-based banking in the last few years, combined with underinvestment in IT has left banks with systems that in some cases are 30 years old, with countless updates and patches making them cumbersome and increasingly unable to cope.
We asked Dr Tony Gandy, ifs University College’s Reader, Postgraduate Programmes and banking IT expert where the problems lie and how the banks are trying to solve them. He was keen to emphasise how successful the systems are. “Everyone criticises the old and creaking systems of banks, but at the centre of every bank is the Core Banking system,” he explains. “This has a job to do: recording the transactions and keeping the individual accounts of people up to date, as well as creating a wider banking ledger, dealing with millions and millions of accounts and billions of transactions a week. That they work so well is a quite an achievement.”
He went on to point out that it was these systems that have made the inclusion of the vast majority of the population into financial services possible. “Don’t forget at the beginning of the last century, the mythical personal bank manager, only dealt with people we would now deem to be high net worth, the rest were unbanked.”
Prohibitive costs of system upgrades
For all their failings, Tony thinks that simply throwing money at the problems is unlikely to help: “Would the big banks build the systems they have now if they started from scratch? Maybe not. But glibly saying banks need to modernise and replace this core is 1) very expensive and 2) risky.”
He explains that the complexity of the systems, with thousands of individual reporting tools, makes introducing a new modern package is a massive task. “Of course banks are moving to new environments,” he says.” And in recent years the idea of massive monolithic systems change has been replaced by the idea of creating interfaces between systems so individual components can be changed. This will enable banks to begin the wholesale change of systems they need – but in safer bite sized projects.”
Banks seek elegant solutions
Despite being cheaper than chucking the whole lot out and starting again, this will still require major investment. In a webinar entitled “Technology Transformation” given by RBS just a couple of days after the most recent ‘glitch’ the bank promised a total of £3.5bn investment by 2017. Significantly, the same presentation makes clear that replacement of “legacy processes and systems” will form a significant part of their technology plans in this time.
RBS are by no means the only bank struggling with the challenges posed by our increasing reliance on IT, with Nationwide being the only high-street lender to completely overhaul its IT system, at a cost of about £2bn. With customers expecting slicker and more flawless service, and with the echo-chamber of social media offering them a very public arena in which to vent their frustrations, it is one area that they simply cannot afford to ignore any longer.