“A revolution may be required to help institutions become both more efficient and flexible for their customers”. Strong words, softly spoken. In his recent Daily Telegraph article, ‘Bleak Future for the Banks of Tomorrow’, Harry Wilson asserted that straitened economic conditions and growing industry regulations will squeeze the banking business more than ever. So how are these adverse external factors impacting the financial services industry’s IT organizations – and what are their CIOs going to do about it?
The Diversion of Disruptive Forces
‘Disruptive technologies’ and ‘disruptive innovation’ represent the next generation of challenges for IT and commerce. A new wave of technology – and a new generation of technically savvy end-users – has driven social media, Cloud computing, big data and mobile to the forefront of IT computing.
Two of Gartner’s top 10 innovations most likely to change the face of business, and two of the three critical trends for 2013 cited by Gartner VP David Cappuccio at the recent ITXpo event (Orlando, October 2012), were Mobile and Cloud. Forrester’s 2012 conference season emphasized the theme of ‘digital disruption’ and queried whether CIOs were ‘disruptive enough’. This new pace of change needs to be supported by the industry, and meet the emerging and diverging demands of stakeholders, business leaders, shareholders and a new breed of smart, vocal users. Mobile computing, social media, Cloud, big data, BYOD and other dynamic drivers are not going away and must be embraced.
The Shadow of ‘IT Debt’
Meanwhile, some IT organizations sit on top of a large heap of unfulfilled business requests as their time-served resources, systems and processes struggle to support the throughput of ‘business as usual’ change requests. The number of unmet requirements in the IT backlog is often referred to as ‘technical debt’. Gartner believes that IT debt – the failure to keep up with even normal business change – will exceed a staggering $1Tr by 2015. Worryingly, 46% of IT decision-makers admit they don’t know the value of their own IT Debt, and 57% of the same respondents confess to having no clear picture of their application portfolio. Gartner and Forrester both reference alarming additional stats: 48% of senior leaders believe they have the policies to meet the challenges of digital disruption versus the 24% of their staff. There are many like this.
Regulations continue to bite
Recent high-profile compliance failures in the financial industry are leading to stricter regulations with more rigid authorizations. Earlier this year the Financial Services Authority (FSA) demanded details of how major banks plan to prevent a repeat of the Royal Bank of Scotland’s mainframe blackout. This hasn’t escaped the notice of Harry Wilson, whose article highlights the banking scandals that have prompted calls for tougher regulation: “Libor-rigging … payment protection insurance … money-laundering probes”, but believes that “politicians and regulators have no shortage of excuses to launch a new clampdown”. The increased emphasis on compliance and control means FS organizations need to implement ever-more robust internal governance and reporting systems, making IT more expensive and complicated to manage.
Chartered Institute of Internal Auditors (CIIA) research reveals that 60% of FSA fines in 2011 were due to weaknesses in the risk management systems of financial services organizations. Managing these changes manually is very difficult and Thomson Reuters suggests the number of regulations needing attention is growing. Viewed in the context of Wilson’s article, the concerns raised by the ongoing disputes in the USA with Wells Fargo and JPMorgan and continued pressure points in the global economy suggests that these controls will become even more intense.
A proactive response
This tells us that CIOs face three sets of pressures – three equally daunting IT challenges, all demanding the attention of the same resources and core IT systems. Encouragingly, a recent Computer Weekly survey of CIOs, ’Finance CIOs reveal plans to recover from recession‘ outlined a wide-ranging, proactive investment program that would enable IT to support critical business change: 55 bank CIOs revealed how they are investing in IT to help them emerge stronger from the recession. Significantly, when asked for their top three IT priorities for the next three years, 27% nominated upgrading IT systems, 22% improving customer experience, 20% mobile banking and 18% said moving to the Cloud. One banking organization reportedly plans an £80m overhaul of its core systems.
It should be seen as positive how ’new business‘ investment has been prioritized, even though half of those surveyed were still aiming to save money – perhaps even the cost-conscious recognize the opportunity to innovate their way out of trouble, through a number of means, with a laser-focus on return on investment on their projects?
As they consider strategies for emerging from recession, financial services organizations need to ensure that any fresh IT investments they make are low-risk, cost-efficient and provide the rapid route to innovation and improved customer service they badly need.
As such, there will be a growing reliance on technology solutions that maximize existing investments, minimize upheaval and unnecessary change while helping to streamline and accelerate business services. Boston Consulting, a financial services consulting group reported in September 2012 that ’New products that function immediately and quick cycle times are more necessary than ever‘.
The future-savvy financial organization includes a solid financial commitment to internal IT in their portfolio. The time for smart IT investment is now.
 Source: Vanson Bourne, 2012
 Sunday Telegraph, 21OCT12