The outdated and poorly integrated IT infrastructure of the banking sector is holding back the UK economy, according to a new report from IT industry lobby group Intellect.
"Decades of ad hoc technology investment, combined with merger and acquisition activity has left many financial institutions with disconnected silos of information and duplicative processes," the report says. "The legacy of underinvestment is an infrastructure that is inefficient, overly complex and an obstacle for cost-effective business change."
This not only prevents banks from providing "customer-centric" services, it says, but also hampers their ability to invest in the UK economy, Intellect argues. "This is holding back the ability of the banking sector as a whole to act as a catalyst for the wider economy.
See also: IT glitch has cost RBS £125m – so far
Intellect, which represents the interests of the world’s largest IT suppliers in the UK, argues that banks need to ‘address’ their legacy systems. "Complex legacy systems inhibit innovation across the financial system and specifically the development of industry utilities that could foster greater competition", it says.
The report also asserts that empowering regulators to demand timely and relevant data from the banks would serve as a driver to renewed infrastructure investment. It calls for a ‘system of systems’, a shared utility service that grants regulators up to the minute access to banking data.
The banking sector’s reliance on outdated technology was highlighted by RBS Group’s recent outage, triggered by a failed upgrade to a batch processing system.
Writing in the aftermath of the outage, Daniel Mayo, financial technology analyst at Ovum, said that banks struggle to find (or cannot afford) IT professionals with the skills and experience required to manage their legacy systems.
"With these systems developed and running on older technologies, the pool base of skilled and experienced staff is diminishing as senior staff retire and new IT professionals largely concentrate on newer technologies," he wrote. "With most banks under heavy cost pressures, this means relatively junior staff are often given responsibility for systems where they have little experience beyond the routine, particularly in a stress situation (as with RBS) where things go outside normal operations."
He added that batch processing systems no longer meet customers’ demands for access to banking services. "The penetration of online banking, compounded with growing uptake of mobile banking and the move for longer branch opening hours, means that IT is increasingly under pressure to reduce system offline time, running batches within a relatively tight window. This in turn results in less room for error if things do go wrong."
However, a recent IDC report on IT spending in the banking sector warned that concerns about the Euro have dampened European banks’ appetite for investment.
"The global economy will continue to flounder in 2012 as the crisis in Western Europe casts a long shadow. As a result, many banks are taking a closer look at their expense budgets as they consider new IT investments," said Jeanne Capachin, vice president of IDC Financial Insights.