Obsolete technology drives change

Finan­cial ser­vices is an infor­ma­tion-based indus­try, yet tech­nol­o­gy has nev­er been a strong suit. Some experts esti­mate per­haps as many as 80 per cent of finan­cial ser­vices organ­i­sa­tions are sit­ting on core sys­tems which are 25 to 30 years old where the cur­rent ratio of 80:20 in terms of main­te­nance and inno­va­tion needs to be reversed.

“Large swathes of finan­cial ser­vices remain depen­dent on so-called lega­cy sys­tems; out­dat­ed, patch­work plat­forms which rely on man­u­al process­es and ancient tech­nol­o­gy to func­tion,” says John Mayr, mar­ket­ing and part­ner devel­op­ment at Sim­Corp.

The dom­i­nant view in bank­ing, insur­ance and asset man­age­ment, has been that if it ain’t broke, then don’t fix it, because in the past these sys­tems have been excep­tion­al­ly cheap to run.

“Box­es have sat there for ten or fif­teen years and peo­ple are afraid to go near them, so they are patch­ing sys­tems on top,” says James Hay­cock, man­ag­ing direc­tor of Adap­tive Labs.

This presents con­sid­er­able risk. Adding new to old doesn’t make the sys­tem bet­ter and every year there are few­er tech­ni­cians who under­stand the sys­tems that under­pin the core. As a result, busi­ness­es are spend­ing increas­ing amounts of mon­ey main­tain­ing obso­lete, inef­fi­cient sys­tems.

The finan­cial space, and in par­tic­u­lar retail bank­ing, is mov­ing faster than before, says Mr Hay­cock, and tech­nol­o­gy is lev­el­ling the play­ing field.

Obso­lete tech­nol­o­gy is not the only dri­ver of change. Reg­u­la­tion is increas­ing and fines for those who fail to meet the stan­dard are becom­ing puni­tive. Yet despite this, finan­cial ser­vices is dom­i­nat­ed by “sala­mi-slic­ing” and cost-sav­ings, says Jean Lassig­nardie, head of sales and mar­ket­ing for Capgem­i­ni Glob­al Finan­cial Ser­vices.

“Finan­cial ser­vices can­not do cost-cut­ting only,” he says. “Busi­ness­es can­not con­tin­ue to com­pro­mise the engine of growth for the future.”

Mr Lassig­nardie says out­sourc­ing will increase with banks and insur­ers adopt­ing third-par­ty tech­nol­o­gy that allows them to inte­grate their creak­ing core sys­tems with 21st-cen­tu­ry flex­i­ble appli­ca­tions.

The finan­cial space, and in par­tic­u­lar retail bank­ing, is mov­ing faster than before and tech­nol­o­gy is lev­el­ling the play­ing field

This may not seem like a major step, but shar­ing tech­nol­o­gy is a rad­i­cal depar­ture in such a com­pet­i­tive indus­try, accord­ing to Steve Vin­ni­combe, a part­ner at Cap­co. This will hap­pen in areas where com­pet­i­tive advan­tage is not as impor­tant.

“Though this does allow them to share in oth­ers’ util­i­ty,” says Mr Vin­ni­combe. “There is a risk and fear of what may hap­pen in a dis­as­ter.”

The con­sen­sus is that core sys­tems will con­tin­ue to be main­tained, while inter­ac­tive sys­tems are lay­ered on top.

How­ev­er it hap­pens, tech­nol­o­gy used by banks has to catch up with the tech­nolo­gies employed by its cus­tomers, says Guy Bunker, senior vice pres­i­dent of prod­ucts at Clear­swift.

“Finan­cial ser­vices and com­pa­nies in gen­er­al face a tsuna­mi of per­son­al infor­ma­tion and com­pa­ny crit­i­cal infor­ma­tion flow­ing between mobile devices and smart­phones, and this is going to get ten times worse in the next three to five years,” says Dr Bunker.

Indi­vid­u­als already expect a high lev­el of inte­gra­tion of tech­nol­o­gy with their var­i­ous accounts and this is set to increase.

This extends far beyond the dig­i­tal native for whom “gam­i­fi­ca­tion” – lit­er­al­ly to make the nav­i­ga­tion of a process game­like and there­fore “cool” – was devel­oped. It now includes those who have become more sophis­ti­cat­ed at access­ing data remote­ly and increas­ing­ly expect inter­ac­tion to be both swift and effi­cient.

“How­ev­er, the way they wish to access this data is at log­ger­heads with the secu­ri­ty and meth­ods of han­dling data at banks,” says Dr Bunker. But they’re going to have to get over it.

Banks have man­aged to silo each busi­ness chan­nel in order to max­imise the oppor­tu­ni­ty, yet have been slow to under­stand that tech­nol­o­gy isn’t a chan­nel to exploit; rather it is some­thing to inte­grate all chan­nels.

Some of the more inno­v­a­tive retail banks have under­stood this, says Rahul Singh, pres­i­dent, finan­cial ser­vices and busi­ness ser­vices at HCL Tech­nolo­gies, mak­ing cus­tomer inter­ac­tions easy, rel­e­vant, trans­par­ent and cost effec­tive.

“They do this by focus­ing on cus­tomer data and ana­lyt­ics, inte­grat­ing the dif­fer­ent chan­nels a cus­tomer might use and also fun­da­men­tal­ly re-engi­neer­ing busi­ness process­es by look­ing at how tech­nol­o­gy can not only improve the cus­tomer expe­ri­ence, but also reduce the cost of busi­ness,” he says.

And it’s not only in retail bank­ing. This is hap­pen­ing in invest­ment bank­ing where real-time risk man­age­ment is con­sid­ered essen­tial and in cor­po­rate bank­ing where par­ties engaged in merg­ers and acqui­si­tions activ­i­ty demand access to infor­ma­tion, not through the appoint­ed bank, but their own trust­ed provider, who­ev­er that may be.

The busi­ness world func­tions on data and it is the cus­tomers of finan­cial ser­vices com­pa­nies who will deter­mine how that data is exchanged, not the providers. This means more col­lab­o­ra­tion, greater shar­ing and plac­ing the cus­tomer before the lim­i­ta­tions of their inter­nal sys­tems.

It’s a hard les­son for the indus­try to learn, but learn it they will, because the world has changed and if they don’t cot­ton on fast, they’ll go the way of the dinosaurs.