By Greg Holmes, Area Vice President of Solutions, EMEA, Apptio, an IBM Company
IT modernisation is a top priority for UK organisations in 2024, and banks are no exception. Financial institutions, known for their agility in adopting new technologies and exploring use cases, are now racing to stay competitive and deliver the best services to customers.
Beneath the surface, most banks still rely heavily on legacy, or heritage, technologies, including outdated architecture that is still fulfilling a purpose, but may not be as efficient as newer solutions. This is underpinned by an “if it ain’t broke, don’t fix it” mindset and the high upfront costs of replacing heritage infrastructure.
Incumbent banks and multinational institutions must strike a balance between pursuing innovation and maintaining these systems. Given the high levels of complex regulation and compliance to which they must adhere and the importance of customer trust, heritage technologies continue to form a substantial part of the IT infrastructure.
Maintaining this balance requires a careful blend of architecture consolidation, ensuring full visibility of costs and usage, and understanding when the time is right for change.
Creating Harmony
Despite the disadvantages of heritage systems, they ensure short-term reliability and low risk. While they can be expensive to maintain, replacing them can bring significant upfront costs that are difficult to justify when the technology is still fulfilling its purpose.
The case for consolidating and phasing out certain IT architectures grows when the breadth and range of technologies within an organisation become inefficient, unmanageable and cost-ineffective.
A useful strategy for guiding these decisions can be mapping efficiency against unit cost, which is important as evaluating the value of projects solely on the basis of how expensive they are will not deliver the most relevant insights, so project efficiency and cost must be taken into account. Even if a solution is costly to run, if it serves hundreds of thousands of customers, it may still be worth maintaining. When usage drops and cost-efficiency decreases, the case for phasing out grows.
The best way to go through this process of consolidation is by focusing on visibility, intention, costs and communication. Organisations need a firm grasp of where their money is going and whether it is being spent wisely. This should be driven by a clear vision of what the desired outcome of modernisation is for that company. For some it may be innovation, for others it may be cost efficiency.
At the heart of this should always be cost considerations, including all implementation and maintenance costs as, without this, things can quickly spiral. We also cannot forget the importance of communication. Every team member will play a key role in upholding this strategy so it’s imperative that they have a clear understanding of objectives and priorities.
Developing a Cloud Strategy
We cannot have a conversation about tech investments in the FS sector without touching on developing cloud investments, as this is a central part of controlling overspending and managing existing costs.
With the web of policies FS organisations must navigate, many have individual cloud systems for different data types or on-premises storage. As a result, some institutions, especially banks, have always adopted a hybrid-first approach. This put them in good stead as it allowed businesses to be more flexible and avoid the risk of restricting future investments. This is a strategy that should be championed by other organisations across the sector instead of implementing a cloud-only approach, which can result in vendor lock-in and can be difficult to manoeuvre around.
How AI Will Impact the Sector
Unsurprisingly, AI is only becoming more integral to IT strategies as the year progresses, with many organisations now allocating specific budgets for AI exploration.
This is opening a new chapter for IT in banks, and over the next few years, we will undoubtedly see new use cases take off and reshape priorities. In the here and now, we see the development of customer service chatbots and digital assistants to help companies provide a more convenient experience without increasing internal costs.
A recent IBM Institute for Business Value (IBV)1 study found that banking and financial-market chief executive officers ranked tech modernisation as their highest priority for the next three years. Identified as the key to unlocking productivity, profit and scalability, financial institutions must invest in their infrastructures to ensure competitiveness in our uncertain and fast-moving global system.
There is no one silver bullet for achieving these goals. Building a cost-effective, efficient and trusted IT strategy will ultimately rely on finding the right combination of heritage architecture, new technologies and hybrid cloud solutions to meet the evolving demands of the customer and financial landscape.