How banks can get a better ROI on technology investments and reduce technical debt

By Frank Trainer, vice president of process and delivery at Saggezza

COVID-19 has accelerated technology investment in banks all over the world.

As banks begin to digitally transform their businesses, it’ll be important for them to justify that investment by demonstrating a positive return on investment. But many banks will quickly find that implementing new technology doesn’t happen overnight.

For banks that try to install new technology with a click-of-a-button approach, they’ll quickly find themselves in what’s called technical debt – which can seriously hamper your technology investment ROI.

We talked to Frank Trainer, vice president of process and delivery at global IT consultancy Saggezza, to learn more about technical debt and how banks can make the most of new technology in 2021.

1: What is technical debt? And why should banks care about it?

Technical debt is a naturally occurring part of software development that occurs when choices are made. Different ways of implementing a solution will all have different technical debt. Over time, as fixes are put in place, and other code changes around it, this code continues to accumulate technical debt. It can be the cost to replace it, the cost to make it work more efficiently, or even the cost to keep it running at all.

It’s different from financial debt in the sense that financial debt is always quantifiable in terms of dollars and cents over time. On the other hand, technical debt is like opportunity cost. It’s the culmination of many things – from the time spent fixing software after it’s released, to customers that went with a competitor because they didn’t like your platform, to the average downtime of your software.

In practice, this could look like a bank’s IT department writing sloppy, quick-fix code so its online platform or enterprise resource planning system will work for the next couple weeks (but will be prone to outages/error messages/etc. after that). When it goes out, the bank loses major productivity hours – this is considered the interest of technical debt.

Banks should care about technical debt because the cost over time is substantial. It’s estimated that it costs $3-$5 per line of bad code. That can add up to millions of dollars each year.

If technical debt isn’t addressed, it can result in endless hours spent fixing software, along with unhappy staff and, even worse, frustrated customers.

2: How do banks and financial institutions know if they’ve incurred significant technical debt?

There are a number of warning signs that you have significant technical debt. The main two are:

1. Working overtime. Your staff is working nights and weekends and/or over 40 hours per week just to keep things running, or fixing things that have gone wrong.
2. Code-and-pray. This means you make a change to a line of code and hope that you didn’t break something in the process (usually to find out later that you did).

The bad news is that these signs show that you’ve incurred massive technical debt, which will limit your ability to keep up with competitors. But the good news is that there are actionable steps you can take to reduce it.

3: So how do you fix technical debt?

Banks should first identify the bottleneck that is preventing them from getting more and better work done.

Think of it like a manufacturing assembly line. If point A can process 10 units per hour but point B can only process five, you can only produce five units per hour no matter how many units you try to put through point A. This is where I see banks getting themselves in the most trouble – they waste time and resources trying to figure out how to cram more resources through point A, rather than figuring out how to get point B to process more units in the same amount of time.

In practice, this looks like the examples I listed above – such as writing quick-fix code so your online platform works for the next couple days. To address and fix technical debt, banks should instead think about investing in a new platform that would better address their business needs. Or it might make sense for them to move to the cloud.

After the bottleneck is identified, it’s time to fix it. It might take a couple attempts to figure out how to do that. But the important thing is that banks get comfortable with the idea of failing fast. This means that your IT team is able to address problems quickly, without having to go through a bunch of red tape to do it. This is a big part of what’s called agile workflow – which helps software and IT problems get solved faster.

To learn more about agile and its many benefits, check out The Phoenix Project by Gene Kim.

4: What technology will banks adopt in 2021? What does that mean for technical debt?

COVID-19 has accelerated interest in banking technology, and I expect that to continue in 2021. Consumers are much more comfortable with online banking now than they were ten years ago, decreasing the need for brick-and-mortar locations. This will result in banks adopting new technologies in order to stay competitive.

The technologies I expect banks to explore in 2021 are:

Blockchain

Blockchain provides 5 unique, but interlocking benefits:

• Consensus
• Authentication
• Validity
• Immutability
• And Uniqueness.

These things are especially useful for sharing information between two parties that might not trust each other. This tech assures all parties that transactions are unique, that the parties to a transaction are sharing the same facts, that the transactions are valid, that their history cannot be changed, and that the parties to a transaction are who they say they are. Blockchain removes a significant expense to banks when they have disagreements about the facts of a transaction. Another big benefit is that rules can be included in the transactions which allows human interaction can be greatly reduced, allowing banks to dramatically decrease overhead spend from about 40 percent to three to five percent.

Robotic Process Automation (RPA)

Robotic process automation (RPA) is a form of artificial intelligence (AI) that will play an even bigger role in performing the mundane, time-consuming, and error-prone tasks that humans have traditionally done themselves – like data entry, counting cash and coins, or identifying fraudulent transactions. RPA also frees up time for staff to focus on higher-impact work. Though, RPA can’t replace jobs that require human interaction, like customer service.

Quantum Computing

As banks collect more information about customers, quantum computing can help them make sense out of hundreds of millions of pieces of information. In the real world, financial institutions will be able to feed mountains of information into a quantum computer to help them make more accurate decisions than ever before – such as what interest rates should be or what could happen with the market if a pandemic hits. There’s really no telling what banks will be able to accomplish with quantum computing, but there’s a ton of opportunity here. At Saggezza, we’re excited about this technology’s potential – so much so that we’re experimenting with Amazon Web Services’ quantum computers in our U.K. office.

5: Anything else to add?

Technical debt was around before COVID-19 hit, and I expect it to be around long afterwards. The single most important thing banks can do to reduce it is to explore new technology in a cost-effective way. You don’t have to spend a lot of money in research, but banks and financial institutions should do the legwork to find out what new technology is out there so they can keep up with competition.