While Royal Bank of Scotland’s IT is under intense scrutiny after its latest failure this week, don’t underestimate the fact that every retail banking CIO in the UK is thinking, “There but for the grace of God…”
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RBS is the worst – but not the only – culprit in its lack of investment in core legacy systems. The reality is that every retail bank has at its heart a central payment processing system that was developed perhaps 20 or more years ago, probably in Cobol, well before anyone had even thought of online and mobile banking.
All the new systems we use today have been bolted on to that ageing back-end. Most of those systems are still batch-oriented – the apparently real-time online transactions we perform are not real-time in those payment processing applications.
That’s why, in different banks, for different transactions, it takes different amounts of time before your online account balance updates. The systems batch-up loads of transactions and process them together.
Banks spend millions maintaining and trying to update the payment processing software to keep up with the latest trends. And every one of them faces a multibillion-pound bill if they redevelop those systems – not to mention the enormous operational risk posed by transitioning from those big old mainframe applications to something more modern.
It doesn’t have to be this way.
Where once those payment processing systems were the bank’s differentiators, now they are a commodity. We choose our banks not on their ability to process transactions, but on their customer service, web and mobile presence. Huge amounts of money continue to be spent on systems that customers only care about when they go wrong.
As the IT industry is learning, when something becomes a commodity, the best thing to do is open source it, and make money providing services around it instead.
Here is the opportunity for RBS – and the government, which is keen to break the big banks’ monopoly on payment processing networks; a monopoly that prevents genuine competition in current account banking in the UK.
RBS has to redevelop its core systems – but so do the other banks. Why don’t they admit to the commodity nature of that software, and jointly develop one regulatory conformant payments system, and release it as open source software, ideally as a cloud service.
Then, they offer services to new entrants who wish to use that system too. Every bank saves money on redeveloping their payment processing system, and they get a new revenue stream from helping smaller banks access that infrastructure.
It’s unlikely to happen, of course. But given that we, the UK taxpayer, own most of RBS, wouldn’t it be a great thing if the government turned to the bank and suggested such a radically different course of action.