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Legacy systems holding banks back

The RBS story last week was the latest in a long line of banking tech failures. year. So why do they happen and is there a solution?

Many insiders believe there has been a gross under investment in banking technology in the last ten years. Well, banks have been busy ploughing resources into compliance to keep on the front foot with burgeoning regulatory requirements. And there's real pressure to keep up with new technology adoption, especially with m-banking.

So have they have failed to invest in their basic infrastructure? Quite probably. Banks have a limited resource where it comes to technology investments. And in cantering to keep up with market developments, it’s little wonder plates have been dropped. Things like offshoring have also complicated the picture making the banking landscape more prone to tech failures.

One of the main problems is they are almost all reliant on legacy systems. All the M&A and consolidation activity back in the 80s and 90s means that these complex and multi layered systems are underpinning our countries’ biggest banks.

The complexity of the environment means any IT change can cause myriad problems. And there's also a definite under investing in testing and quality assurance. An issue with testing, particularly the end-to-end testing needed to identify the wider impact of change, is that banks only have a finite resource for it. You can’t test for every eventuality as the cost and time involved would be through the roof. You have to assess the risks and make an educated judgement. Of course, this approach means that problems will inevitably occur.

A total replacement of legacy systems and decades old software would be ideal. But that would be massively expensive – the Tesco Bank news that it is to enter the current account market after spending years and a huge amount of money moving away from the RBS infrastructure, building its own IT systems underlines this.

But they have to do something – customers will start to lose patience with their banks’ service failures if they continue, will vote with their feet and start switching accounts. Technical hiccups damage reputations and can have a serious impact on share price. So investing in robust systems and architecture that is tested on a regular basis must be a top business priority.


Comments: (2)

A Finextra member
A Finextra member 12 December, 2013, 09:54Be the first to give this comment the thumbs up 0 likes

Legacy systems are indeed holding banks back - from tumbling into the abyss ...

Legacy systems are typically much more reliable than the blown-up PC technology which today's giant server farms and cloud computing are made of. Proof point are the major stock exchanges, who did get rid of their legacy systems and now are almost entirely on contemporary technology - they saw a decline in reliability, and the SEC is now orderung US exchanges to get their act together and to make their systems robust ...

However, there are of course problems with legacy systems too - especially when the people who did understand them have retired. Also, bolting new systems for providing new functionality onto those legacy systems can be quite challenging. 

There's nothing wrong with replacing legacy systems, but you need to understand them first - and you need robust replacement systems. PC technology isn't always good enough ...

Julian Farley
Julian Farley - OpenWay Europe - Pinner 12 December, 2013, 11:261 like 1 like

Darren, you raise some very valid points, especially with regard to legacy systems and the pressure to keep up with new technology adoption.

Banks are unable to invest in new technology partly due to budget constraints, the high cost of maintenance, but also due to the fact that no single person or even group of people ever fully understands the end to end structure. 

You are right that it is time banks got back control of their payment systems in order to adopt new technologies and meet customer requirements.  This would minimize the need for unique customisations and in turn help reduce the high maintenance costs freeing up budget for new projects.

The best way for banks to get back control is to simulate or model the existing system through testing.  They will then be able to understand the functionality offered today, and therefore what new functionality is required.  Once they understand the current system they will be able to assess new systems and functionality to see how it will interact with and impact current services.

This is the first step in adopting an end to end testing strategy that will give the bank the confidence to move with the times and not get stuck in a rut.

As a final thought it is important to ensure that any testing being done accurately reflects the real world.  Using test data analytics you can correlate your test logs against production logs to ensure that the percentage of each type of test run is relevant to your environment