Banks need to tackle IT complexity to avoid further regulation

Complexity is the common enemy of every IT leader. Ask any group of IT managers what is their biggest day-to-day challenge, and the answer you will most often receive points at the complexity of legacy infrastructure.

For too long, IT departments and their suppliers have used that complexity as a protective suit – when asked, “Can you do this?” the response has been, “Ooh, that’s complicated.”
For many years, it’s been easy to get away with it, as the business users or IT buyers were at a disadvantage in their technology knowledge.

But things have changed. Now, everyone’s expectations of technology simplicity are set by Google, Facebook and eBay. We as IT experts might understand the incredible complexity behind the ability to “Like” the Team GB Olympics page, but for the users all they see is the simplicity of clicking a button.

Those expectations are what IT departments now have to live up to.

Nowhere is this becoming more apparent than in financial services. There are growing calls for IT to be regulated across the banking sector after the Royal Bank of Scotland and NatWest fiasco that prevented customers accessing their accounts.

A report this week by IT trade body intellect estimates that banks spend 90% of their IT budget on managing legacy infrastructure – that is simply unsustainable.

Banking systems are among the most complex around – developed over years, often reliant on ageing mainframes and applications that are well past their best-before date, but which do their job day in, day out. Add to that the number of mergers in the sector, with overlapping systems having to be integrated – and add too the customer-facing systems that have been bolted on top to deliver online and mobile banking.

It all works, mostly. And the cost of updating a mostly functioning but ageing system is difficult to justify when the replacement will effectively do the same job, just with newer hardware and software. It’s even harder to justify in the middle of an ongoing banking crisis.

But if IT now represents the arteries of the financial world, then those arteries are increasingly sclerotic and one day the blockage will become terminal.

Banks are in an impossible position – needing to spend money to remove complexity with little return on investment. But if they want to avoid regulated IT systems, and have an IT infrastructure with the flexibility to cope with rapidly changing customer requirements, that cash is going to have to be spent.

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I completely agree with Bryan: complexity in today’s IT infrastructure environment is the biggest challenge that any IT leader faces.

For the financial services industry, this challenge is felt all too keenly at present, real-world errors being seen downstream from issues due to core system and process complexity.

However, this isn't an impossible position regarding their IT: older systems can still offer renewed value by reusing and exploiting what is known to work already, and which can still offer additional business value more cost-effectively.

What then becomes the true challenge is easily and accurately identifying these applications that have this value and are "ripe" for renewal.

This requires a transparent and comprehensive understanding of the application portfolio. This seemingly impossible is made real with the help of enabling technology, and is much more achievable and cost-efficient than either completely overhauling IT systems or concocting strategy based on supposition or myth.

Being able to determine an IT strategy that is both accurate (lower-risk) as well as sensible (cost-efficient) not only justifies application portfolio management efforts but positions IT to support greater innovation as today's business surely demands.

Derek Britton (Micro Focus)
Hi Bryan,
Interesting blog, I have a different slant to your points. Few comments from my side:

Simplicity will bring complexity. Let's face the fact, simplicity to the end user such as clicking on the 'like' button or buying at Amazon with ‘One click’ will actually increase the complexity of the systems under the bonnet. So banks will have to be prepared to deal with more complexity.

Secondly, I agree that the core banking transaction systems should be simplified, but what I don't agree with is, 'there is no return on investment'. Highly complex systems are expensive to maintain, simplification of systems should improve the total cost of ownership.

Thirdly, for the banking industry, the answer does not lie in simplification of the systems only. The answer lies in IT working with business and creating new products and services. The banking industry is archaic and has lost its mojo. It is the most opportune time for the IT department or the CIO to revive it. The IT department has to do what Steve Jobs did to Apple on his return in 1996 i.e. simplify the product stable and introduce some new cool products. Are the current generation of CIOs up for it?