Computer systems that deal in pounds, shillings and pence are at
the core of IT infrastructures at some of the UK's biggest banks.
Banking services depend on them 24-hours a day, but the legacy
systems of many banks are expensive to maintain and inflexible.
The complexity of replacing hundreds of applications developed,
acquired and integrated over a long time using proprietary methods
makes the task "analogous to an archaeological dig," says Gartner
analyst Don Free.
Furthermore banks have not been in a hurry to change things
because they do not have to, according to Justin Speake, CEO at
research company Bloor. "Banks have not had to invest aggressively
in IT because they have been making lots of money," he says.
Ian Benn, managing director of payment services at Fidelity
Information Services (FIS), which provides core banking systems to
banks, says it is hard for the IT department to sell legacy system
replacement.
"This is because it costs hundreds of millions of pounds, takes
four or five years to implement, is a risk because it might not
work, and when it is finished it just does the same thing as the
previous system."
The current slowdown in business has put banks under pressure to
cut costs. It is at times like this that banks will look at cutting
fixed costs such as people, property and IT, he says.
Free at Gartner says more banks will be refreshing their systems
over the next three years. "The velocity of core banking
replacement is accelerating. There will be activity as banks turn
from [research and development] to fully fledged implementations in
most regions."
Typically banks are using middleware to enable them to re-use
legacy systems for new products and services.
Barclays, for example, has a
two-year IT project to link legacy systems to frontline
applications using Java-based web services. This enables legacy
systems to be connected to new applications.
This method of re-using functionality is a common alternative to
SOA, which for the larger banks is a major challenge, according to
Speake at Bloor. "Everybody is looking to use SOAs but they are
actually using web services and are more effectively connecting a
bunch of widgets," he said.
Large banks are not yet ready to replace all legacy applications
with SOA. This is, however, more manageable for smaller financial
services firms such as the Nationwide Building Society which has
begun a five year project to adopt service oriented
architecture (SOA). The firm is using SAP software to move away
from building its own systems to help it introduce new products
quicker it could if it had to build applications on its legacy
infrastructure.
The ultimate goal of any financial services firm is to have a
single view of customers across its product range with databases
and product processing systems sharing information automatically.
This would simplify the creation of new product systems and make it
easier to access customer information.
Abbey has moved to a single view after it integrated to the
global banking platform of its parent Santander, known as Partenon.
This replaced all legacy systems and gave what is traditionally a
national bank similar capability to a global bank.
As a result of the high costs and risks associated with the
replacement of legacy systems many industries are moving towards
hosting services, and banks outside the UK are no exception.
Benn at FIS said the UK banks are not yet interested in the
hosted model but this could change as reducing the fixed costs of
doing business becomes a more important consideration. But UK banks
are yet to take make such a sea change.
"In the US, banks have been happy to use third parties to run
core banking systems. In Germany 10 of our customers use the hosted
model for core systems, and in the Nordics 165 use it," says Benn.
"But in the UK none of our customers use it."
Banks have kept their legacy systems for so long because there
has not been a business case for changing them, but the current
economic climate could give IT a strong enough voice to get IT
upgrades approved. In the past IT has been a weak cost centre
negotiation with departments, which are powerful profit centres.
But times are changing in financial services and IT will be
increasingly harnessed to improve competitiveness and
efficiency.