Financial services has found itself cut off from the technological developments of other industries, and an unwillingness to catch up will see it experience further problems, according to a panel at Money 20/20 in Amsterdam.
“Banks have found themselves marooned from the main development strand of technology,” said Paul Taylor, CEO of banking technology firm Thought Machine. “Things like the cloud may seem new to banking but really have been best practice in tech for some time. The economies of scale and the passion which people have put into producing good technology at the tech companies is miles away from how banks do it.
“When a bank says ‘we want to go into the cloud,’ they’ve been doing the wrong thing for so long it’s tough to undo all that and then get into it. That doesn’t mean they shouldn’t do it, but the development practices diverged so long ago.”
A February study from 451 research found that 18% of financial services firms are fully deployed on the cloud. Hybrid cloud deployments are more popular, with 21% of respondents to a Nutanix report citing its use at their firms.
For Eli Rosner, chief product officer at Finastra, banks must acknowledge the fact that they have a problem. “The second crucial thing is how quickly can they react to this problem. They still go through regular and traditional processes when replacing a core banking system.
“It’s a very complex process, but the discussions are changing. Banks are acknowledging that they can only take the existing old incumbent core banking systems so far, and they’re looking for ways to extend the life of that system by using new technology and give them the space to think about a replacement.”
Megan Caywood, managing director and global head of digital strategy at Barclays, added that banks often have large budgets available to them. “I think it's interesting because banks have a lot of money, but they're also good at spending a lot of money. Whereas challengers and startups have a very small budget relatively. When you look at people like Starling and Monzo, they built in house. When I was at Starling we built the basic bank for £3m. If you took £3m to a large bank that would a small budget.”
A KPMG study into the spending habits of banks between 2017 and 2018 found that 29% of CTO’s felt hampered by their budget, while a majority of banks believed that they were not effective at keeping up with innovation in the marketplace.
Finastra’s Rosner added that much of that banking IT spend is on maintenance. “80% to 90% of their spending is in keeping the lights on. They’re tied to the technology and don’t see themselves as technology companies that provide banking services, they are banks that leverage technology.”
Luca Romagnoli, director of regulated industries EMEA at Salesforce, said that many banks are still stuck looking at old processes. “It has been the same old thinking of the banks which has pushed the vendors in certain directions they wouldn’t have necessarily taken. For example, one of the questions we still get today is whether we have an on-premises version of Salesforce. We’re obviously not going to develop that, but this is indicative of the mindset at some banks.”
Thought Machine’s Taylor added that the issues which banks cite as reasons not to change a core system, including cost of change and unplanned downtime, had been solved by the technology industry.
“I’m not saying the banks should be incredibly innovative, it’s just applying best practices that are known elsewhere to the problem. The core mindset and the way banks look at technology isn’t correct. They see technology projects as one offs, but really the mindset should be about every day. New things will always come along and you must anticipate them and change the system accordingly. Until you build a system prepared for change there will always be this problem.”