By Mohua Sengupta, Senior Vice President & Head – Banking Financial Services & Insurance and Sujeeth Samrat, Retail Banking Solutions Lead at ITC Infotech

Advancing technology provides both a big opportunity and a big challenge to businesses in all sectors today. It has created a generation of consumers who demand ever more freedom and accessibility to services, while also granting companies an unparalleled chance to understand and engage with their customers. While it affects all aspects of business, none feel it more keenly than the world’s banks, that face constant pressure to build a customer-centric framework but are faced with many technical and regulatory limitations.

Mohua Sengupta

Banks, especially the most well-established institutions are at a relative disadvantage because of their sheer age. Many of the leading banks are over 200 years old, and while being so well established has many advantages, it also means they had to explore new technology as it becomes available, and integrate it as best they can. A technical legacy stretching back half a century or more means that many banks have found themselves trapped by the restrains of their own systems.

These limitations have a negative aspect across all areas of operation. For one, the rigid architecture that these older systems are built on prevents them from effectively developing new products and bringing them to market, as everything they do is defined by the legacy. It also means that the cost of day-to-day maintenance is much higher, as older systems need more work and may require specialist skills.

Alongside simply keeping up normal operations, any attempts to change and update systems can become a major challenge. Banking is far more complicated than most other sectors, and is also subject to very stringent regulations. Any change to the way data is managed leaves them at risk of strict penalisation if they do not comply.

To complicate matters, multiple systems have usually been built over the years, and there is often a lack of integration. This also prevents the organisation from responding to new needs in an agile way – a serious issue when the system is hit by technical challenges.

Unfortunately, banks are increasingly hit by technical challenges, with most of the leading banks around the world having suffered very public issues in recent years. Problems range from online crashing and cashpoint blackouts to serious issues that have stopped paydays. A short service outage or system crash, which may have slipped by, largely unnoticed, 10 years ago will be instantly shared on social media today, bringing it to the attention of millions of other customers. The potential for reputational and financial damage has thus grown much greater and it has become much more difficult to manage the the same in recent years.
The financial sector is particularly susceptible to a negative reaction as it is still suffering from the pall of the financial crisis of 2008. So with many consumers still lacking trust in the sector, it’s more likely for technical failures to be seized on.

The good news is that we have definitely seen the financial sector take on board the importance of the reputational impact of a technical problem in today’s connected society. When I first entered the sector many years ago, IT risks were never on the agenda of the CIO. Today however, it is a shared concern of the C-suite, and we see most organisations understand that a system failure can actually cause more damage to reputation than it does to operations.

A full system transition from legacy systems is a Herculean effort that will take a long time to complete, but we have seen many banks already start mapping their journey. Banks cannot risk even a small amount of downtime, which limits what they can do with live systems. As a result a major focus is to revisit existing systems and devise a way to migrate operations without disruption.

A lot of work is being done on building confidence with new systems now, so banks can experiment later without risk. The traditional models of core system transformation that uses a large system integrator have in many cases injected more complexity in the programme that it intends to simplify. Looking forward, a major focus is the construction of the ‘building blocks’ of modular system architecture. A modern, modular infrastructure grants a powerful advantage in terms of agility, allowing the organisation to replace or add components without affecting the rest of the system Many banks are working with specialised IT service providers for expert value added services at optimized cost, as opposed to going with the traditional SI model.

Technical limitations are so deeply ingrained that moving away from legacy systems will also enable an institution to reinvent their business model. Everything from data management to business logic and business processes may need to be reassessed in the light of changing business dynamics and regulations. Beside the obvious benefit of avoiding major IT failures, many banks are keen to change their processes so that they can become more efficient, driving down costs and providing a powerful differentiator in the market.

Ironically, it is the newer and less well established institutions that are leading the way. In emerging economies, for example, a lack of legacy has brought a great deal more freedom and agility for the banks. We have worked with ‘new age’ banks, such as those launched by leading retailers, who are developing at an accelerated pace. While older banks still have a long way to go, , they have made an impressive amount of progress in modernising their systems, and hence giving us a hope that we would see less and less of attention grabbing IT failures. The sector is all set to transform in the next few years, revolutionising everything from the way they engage with customers to the very structure of their business operations.