Banks need to invest in a new IT infrastructure to
support online services and help them to meet a "plague" of
technology and compliance issues, according to a report by analyst
firm Giga Information this week.
Technical challenges, such as the need to interact with customers
24 hours a day over multiple channels, coupled with new regulatory
requirements like the Basel II Accord on risk management, mean that
banks will have to spend more on technology than most other
industries, the report predicts.
"Technology issues in multiple facets of daily operations are
plaguing banks," it said. "Problems range from simply knowing and
recognising customers to complying with continuously evolving
industry regulations.
"Customers demand 24x7 access across multiple channels while
regulators insist on complex disaster recovery plans."
Giga's report advised banks to develop an IT infrastructure that is
based on open technical standards to link old, back-office systems
with new electronic applications and help to create a single view
of the customer across a business.
The internet data standard XML, along with object-oriented
programming and middleware software, have emerged as the main
planks of the modern IT infrastructure in the banking
industry.
Giga also noted other sea changes that are occurring in banking IT,
such as the increased use of Linux open source software. "A growing
number of banks and financial services firms are adopting Linux,
primarily in the areas of application integration and server
consolidation.
"The cost savings between Sun Microsystems' Solaris [Sun's Unix
operating system] Sparc [Sun processor] and Linux/x86 [Linux
running on Intel hardware] can be significant.
"The ability to reduce software licensing fees is another driver of
Linux migration."
The drive among financial firms for straight through processing -
technology to automate the processing of financial transactions -
plus the technical support demands of electronic payments, will
also see banks continue to outsource swatches of their business,
Giga said.
The next big compliance issue for the
banks
The New Basel Capital Accord, dubbed Basel II, aims to make
banks' assessments of their loans and investments more sensitive to
risk, while reflecting technological developments in global
markets. The accord, which is due to come into force by the end of
2006, has far-reaching implications for corporate IT systems. IT
directors will have to link a maze of banking databases and
reporting systems, update older applications and ensure information
in systems is accurate. Analysts estimate that global banks will
have to spend between £20m and £100m to comply with the
requirements of Basel II.