Banking innovation: a marathon, not a sprint

Derek Britton is director at Micro Focus

Britain’s banks have reliably serviced the banking needs of millions of customers for more than a hundred years; providing a safe place to store hard-earned cash, mortgages to buy dream homes, and great interest rates to accumulate savings, writes Derek Britton.

In order to keep up with a new wave of customer demand, banks are moving into a new era of financial services where digital banking transactions are now worth almost £1 billion a day according to the British Bankers’ Association – and capitalising on this opportunity with new products and services is hugely enticing. However, the constantly changing nature of the technology landscape means that banks will need to ensure they have the IT operations and infrastructure in place to cope with the pace of change. Those that struggle could lose customers to new challenger bank.

Like a marathon runner undertaking months of necessary training and nutritional programs, banks need to ensure they are set up in the right way to support the ongoing process of technological innovation.

So how can banks keep up with technology innovation for the benefit of their customers?

Acting in haste?

Over the last year, the financial services industry has moved in a positive direction; Barclays unveiled its new bPay contactless wristband which promises a new, more convenient way to pay and the likes of Lloyds Bank began a digital transformation process which saw the reduction of local branches in favour of accessible “home banking.” Elsewhere in world, large French bank Groupe BPCE and ICICI Bank India, have both recently launched a service enabling their customers to transfer money via Twitter.

These are great examples of how the financial industry can remain innovative by embracing technology trends such as mobile, cloud and even wearable technology to improve customer experience.

However, this year we are set to see competition hot up in the financial services sector, as new ‘challengers’ enter the market. The impending launch of Atom Bank, the brainchild of former leaders at First Direct and HSBC, is highly anticipated as the UK’s first exclusively digital bank and having recently secured £25 million in funding in December. This month Hampden & Co, a new retail bank, also announced plans to launch, revealing as well it will be powered by a cutting-edge cloud-based core banking platform. Without legacy IT infrastructure holding them back, these new banks will be able to innovate quickly and easily.

Unfortunately, in the race to keep pace, some traditional banks have fallen foul with customers as they have suffered IT failures or run into expenditure issues. Having opted for IT infrastructure overhauls as part of their digital transformation, errors arise by failing to determine how new services can integrate with existing systems running on current back-end IT infrastructure.

Core IT systems provide real business value and contain the business logic that define and encapsulate the value a bank can provide for its customers. However, levels of IT funding have, over time, adversely impacted the health of those systems.

This diminishing investment isn’t at all surprising. If a system works, how can it justify the ongoing support cost? Inadvertent neglect of critical applications only comes to light when attempting a dramatic change to support modern technology.

Avoiding a false start

Last year, The Kelly Report highlighted how recent banking industry failures have resulted from the practice of ‘ripping and replacing’ such systems to try and meet customer demand. The Co-operative Bank fell victim to this approach and the report attributed their problems to poor management, bad lending, a flawed culture and an overambitious drive for growth.

With IT systems holding 30 year-old applications that contain millions of lines of code including company IP and customer data, this approach can become complex, risky and costly. A change to one application could have an impact on another application – potentially making confidential customer data no longer protected. This can, as we’ve seen in several instances, cripple banking systems causing them to fail and, ironically, make a big impact on customer service and brand reputation.

However, reviewing the investment funding levels into the support of technology will enable the modernisation of existing systems to catch up with innovation demand. Existing services can continue to run, and modernisation built on tried and trusted tech enables banks to offer improved services without risking system failures. Achieving this starts with a macro view of the portfolio, pinpointing the applications that need modernising, and then updating and testing them within an efficient, modern IT environment.

Eyes on the prize

Banks like Lloyds and Barclays are great examples of how traditional banks can remain competitive against new challenger banks and service customers whose expectations are increasing by the day. Organisations need strategies to modernise their core systems cost-efficiently and at low-risk. This involves using and reusing tried and trusted applications and processes, coupled with contemporary, efficient technologies that will enable them to ensure they deliver new services, faster, without risking system outages. The same streamlining technology can also support objectives around regulatory compliance and new innovation, delivering benefits in the short and long term.

IT modernisation is an ongoing task. Careful monitoring of new application performance will ensure there are no disruptions to new technology services during heavy load periods, ultimately retaining customers through strong brand trust.