Are banks more than just ‘museums of technology’?

Earlier this year, FinTech Magazine got the thoughts of 10x Banking Founder Antony Jenkins, who cited poor technology at legacy banks as key to a 20% drop in customer rates.

In an era of digitisation, Jenkins feels inadequate technological updates for an enhanced customer experience has led some consumers to shift allegiances, opening accounts at challenger banks. 

Jenkins noted that banks have overlooked what really matters – the customer – and become “museums of technology” in the process. 

However, Retail Banking Lead at GFT Richard Kalas has a different view. He says: “I can’t help but feel that declaring that banks and their technology are outdated doesn’t paint the full picture of the technological progress within the sector.”

Work in banking sector not portrayed positively 

For Kalas, the work being undertaken across the legacy banking sector to level up their services to a more digital proposition is not being adequately noticed. 

He notes: “Whilst it is true that many banks, especially large high street brands, use legacy or outdated technology, this doesn’t accurately portray the work being undertaken across the sector. 

“Instead of calling them ‘museums of technology,’ it is far more realistic to consider banks as complex networks of legacy and modern technology co-existing and evolving to meet their customers' requirements in a timely, cost-effective way.

“In many ways, Transport for London (TfL) could be considered a 'museum of transportation', given its Victorian tunnels and legacy rolling stock.

"However, TfL also has much sophisticated and advanced technology, for example; the Elizabeth Line or the introduction of tap-on/tap-off ticketing, and rolling stock that is continuously renewed and replaced. There is no push to replace Victorian tunnels despite the obvious benefit that doing so would bring.

“The same is true of banks with large, legacy IT estates, where many systems are decades old, yet continue to operate and function without incident. These sit alongside the latest cloud-based technology, offering resilient, scalable solutions for online and mobile banking, as well as data analytics.”

Do all banking systems even need a refresh?

As far as Kalas is concerned, the need for every banking system to go through an upgrade may not even be appropriate; technological upgrading is “complex” and should be judged on a point-by-point basis. 

He adds: “The question of whether all banking systems require a technology refresh is far more complex than for a transport network that continues to serve a commuting public. Banking products and services change much more frequently. Estate renovation is, therefore, a continuous process driven by requirements, yet constrained by budget.

“Modern banks, whether digital-only neobanks or traditional, have been sensibly approaching their estate renovation for some time and, considering their budgetary restraints. These estates often feature thousands of systems, designed to meet specific business requirements, their ability to scale, cost efficiency, and new revenue generation opportunities. 

Is upgrading worth the consumption costs?

“Technology for technology's sake rarely features within this approach, unless, for example, access to legacy skill sets starts impacting cost,” explains Kalas. “Oftentimes, one of the first conversations we have with any prospective new business or client is to determine just how frequently they are renovating, investing and updating their technology. 

“Naturally, as the launch of new technology has progressively sped up, businesses (including banks) have struggled to keep up with each and every new innovation that comes to their industry.

“It is true that businesses often benefit more from the retirement of older legacy systems than solely through refreshing technology. In itself, analysing the thousands of systems and the impact that outdated technology is having can take time and resources.

“However, without this assessment, the process of moving an inefficient estate from an owned data centre to the cloud can result in increased consumption costs. Businesses will also miss out on the benefits arising from the optimisation and re-architecture journey that would otherwise be part of the migration process, and which can create large improvements in efficiency and customer service.”

Slow legacy upgrades: The pragmatic approach

Kalas believes legacy institutions are aware that their systems are outdated, but are employing pragmatism so as not to incur greater consumption costs. 

He concludes: “As much as those of us who work in technology would like to see an increased speed of adoption across legacy infrastructure, all renovation projects – big or small – must be subject to pragmatic thinking, to weigh up the benefits against the cost. 

“It may be easy to contemplate the idea of bank technology as a ‘museum piece’, but think about this as we continue to commute on a cramped tube train, in small and narrow tunnels, and without air-conditioning, to appreciate the true challenge that tackling legacy systems often poses.”

So, while banks may be behind in upgrading their technologies, as opposed to challenger banks, is it too harsh to assume a sense of reluctance, or unwillingness to change? Is pragmatism the right approach for banks to take, or are they destined to become museums of technology?

Have your say in the comments space for this story on the FinTech Magazine LinkedIn page. 

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