Earlier this week, a director of the Prudential Regulatory Authority warned that the IT systems of the UK banks were “antiquated” and that he could not say with confidence that they are robust. These damning comments were delivered to the Northern Ireland Affairs Committee as they discussed the major IT failure at RBS/Ulster Bank in 2012.
The statement highlights the Financial Services sector’s problems in dealing with legacy systems, particularly after years of cost cutting and in the face of new customer demands and more aggressive competition. This has been a central theme in our recently published Financial Services Market Trends and Forecasts and Supplier Landscape reports. In our view, these problems are so acute that the major Financial Services companies will have to outsource significantly more of their IT to third-party vendors and reduce their reliance on in-house IT departments.
There is no financial logic for banks to run large commodity IT estates when scale-advantaged specialists can do it better, or where industry-wide utilities can connect across the financial community and deliver better service more cheaply. Banks would then be able to focus their resources on the areas where they can develop real competitive advantage. As we point out in our Financial Services Race for Change piece, this year could be crucial for the sector as it wrestles with legacy issues. If the incumbents are so distracted by propping up legacy systems they will only lose out to more nimble and innovative new entrants.
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