Slideshow 9 ways bank IT just keeps getting harder

  • February 19 2018, 10:00pm EST
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Bank IT: It just keeps getting harder

To cope with the demands of the future, bank IT departments have a lot of juggling to do.

Banks are under pressure to adopt new technology to modernize the customer experience and generate further operational efficiencies, all in the name of staying competitive. Many banks are investing in or acquiring fintechs to gain a technological edge. The banking customer is changing, too, increasingly demanding virtual and mobile options.

The big problem, though, is that most financial IT departments are still dealing with the same operational challenges from the past: budget constraints and short-handed staffs. There’s also the inescapable roadblock of legacy core systems that cost millions just to maintain, and millions more to upgrade. The number of public glitches by banks attributed to updates demonstrates the ongoing struggle of grafting new capabilities onto aging systems. Even when firms successfully complete upgrades, they sometimes have zero impact — Cognizant estimated that a quarter of core banking upgrades produce no transformative results.

The new architecture of microservices — designed to be modular and cloud-based — is being promoted as an operational alternative for banks. But it has numerous potential drawbacks, and some IT departments worry that it will be impossible for them to manage multiple cloud connections. A new survey of global chief information officers at financial firms by the application performance management software firm Dynatrace tracked widespread frustration and concern among executives.

There is, however, one emerging technology that banks are counting on to help them cut through their thicket of IT challenges: artificial intelligence.

A multiplication challenge

A single web or mobile finance transaction now crosses an average of 38 different technology systems or components, compared with 26 just five years ago, according to Dynatrace.

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Executives set a growth agenda

Every bank is positioning itself as an innovator, exploring any number of new technologies for front- and back-office processes. The result? More than half of CIOs from financial services organizations are planning to deploy new technologies in the next 12 months, Dynatrace's CIO survey found.

The hidden cost of tech

A focus on the new ignores the inescapable problem of any technology: Eventually, it's going to break down. IT teams spend an average of 30% of their time dealing with digital performance problems, costing their employers an average of $2.5 million every year, according to Dynatrace's survey.

Tech vulnerabilities

Safeguarding IT is another burden. Countless data breaches have financial institutions on the defensive. Banks are continually spending on protecting the digital infrastructure they already have in place. Across banks of all asset sizes, 47% said that IT risk was the biggest threat facing them in the coming year, and 77% counted it among the top three threats.

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Don't forget the core

IT innovation runs into a brick wall because most banks remain attached to core banking systems. Banks often opt to upgrade or tweak existing systems rather than attempt wholesale replacements. One reason: Core banking conversions are expensive and lengthy processes. It takes banks about six years and $450 million to convert typical core systems, EY estimates.

Microservices present 'almost impossible' challenge

Cloud-based infrastructure is being offered as an alternative to banks. But CIOs worry it puts too much of a burden on their IT departments. Roughly 72% surveyed said monitoring microservice in real time would be "almost impossible."

Branchless banking increasingly the norm

The future of banking is mobile; 89% of CIOs surveyed by Dynatrace reported their banks were already offering apps. Bank of America surveyed customers and found that 62% were using mobile phones for banking. Tying apps to core systems and keeping them current with app updates, however, has proven to be a regular challenge.

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Regulatory demands

Compounding pressure on IT departments is the regulatory risk attached to their work. Since the financial crisis, U.S. and European regulators have hit banks with $342 billion in fines for infractions including data breaches, according to Quinlan & Associates. Data security compliance has become a top priority for federal bank regulators.

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Artificial intelligence is the one bright spot for IT professionals. Over 80% of CIOs said they will be deploying some sort of AI application to assist with systems management. "We believe AI will touch nearly every piece of our business in some way," said Steve Ellis, head of the innovation group at Wells Fargo.