Banks have taken a bit of a hit since Brexit. As a cyclical stock, banking in tandem with housebuilding and travel, has seen a considerable slide in share price. In the face of market volatility, investors panic, withdraw cash from banks to plough into defensives.
In the weeks since Brexit, banking shares dropped by up to 20 per cent.
Boost to lending…
Of course, it doesn’t just end with share prices taking a hit and the value of investor portfolios dropping. We might also see a bit of a knock on in terms of lending. Banks have said that the availability and cost of mortgages and credit for households
will remain more or less the same over the next few months. But it really depends on whether we see an economic downturn. In the period following the financial crisis, there was a sharp decline in the demand - and availability – of mortgages.
But the Bank of England has given a bit of a knee up to the banks in terms of lending. At the start of July the Financial Policy Committee cut the requirement for capital buffers, giving banks the capacity to lend up to an extra £150 billion.
Period of belt tightening…
Whether banking revenues will take a bit of a hit over time remains to be seen, but there is little doubt that we’re in for a period of belt tightening. This is why now – more than ever – banks have to ensure their project failure rates are driven down and
those failures become successes.
Driving down project failure rate…
The cost of tech failure to the banking industry is enormous. According to Standish Group’s 2015
Chaos Report, 66% of technology projects (based on the analysis of 50,000 projects worldwide) end in partial or total failure, with the financial sector wasting billions of dollars every year.
Every time a system goes down and customers are denied access to online banking, ATMs and EPOS systems, it costs banks dearly to put the problem right. In reputational terms as well as monetary. And the frequency is increasing - a Government select committee
was set up this year to investigate why so many banking IT failures happen.
The reasons why there are so many outages have been explored widely – one of the most commonly cited is the over reliance on legacy systems which are massively costly to maintain. With the advent of fintech and banks being able to innovate to replace the
functionality of legacy systems, this might alleviate problems over time. But fintech also significantly lowers the barrier to market entry and brings all kinds of competition for the big players.
What banks need to do, in an era where a question mark hangs over the UK’s economic future, is to do business and tech projects better. They need to be able to deliver them with the certainty that they will come in on time and budget. To do this, they need
to put the right check boxes and processes in place. In times of austerity, every little helps and not wasting money on botched projects or poorly delivered systems will help banks claw back some ground.