Business, litigation, reputation? The Avoidable Costs of IT failures in Financial Services
With clients including Experian, Barclays and BNP Paribas, Step5 helps the financial services sector develop new service offerings and look to the future of their technical architecture. It requires careful planning as the well-publicised challenges of upgrading legacy systems have shown.
A raft of articles about the increase of IT failures at financial institutions have appeared in recent weeks and were extensively reported in City Am, the London daily business newspaper, The Times and The Business Insider among others. The Financial Conduct Authority reported that IT failures at financial institutions have more than doubled in the last year.
The Financial Conduct Authority reported that IT failures at financial institutions have more than doubled in the last year as firms, pushed by the challenger community, struggle to update legacy technology, increase engagement and trim costs.
From technology outage to increase in cyber-attacks this is a worrying trend, and one that threatens both UK customers and financial markets. You only have to look at TSB’s recent technology failure and its impact on customers to grasp the magnitude of the problem.
“The UK’s financial firms reported a 138% increase in technology outages to the FCA in the last 12 months”
Technological infrastructure affects the culture, efficiency and relationships of every single business, it is crucial to get it right from the start. Especially nowadays in an increasingly fast-paced society where everything across personal and professional life relies heavily on technology and digital innovations. It can be understandably hard for legacy institutions to adapt. IT structures and frameworks are notoriously rigid and usually implemented very deep into the business, controlling everything from procurement and HR processes – payrolls and employee development, appraisals – to operations and productions. Those structures implemented ten or even only five years ago are often already obsolete…
In this context it is hard to compete with the fintech start-ups that are nimbler and can make the best of recent innovations and new technologies such as AR, AI and the Internet of Things.
69% of the UK population now bank online regularly.
Office of National Statistics
The investment is there. For example, in February, Lloyds announced a £3 billion ($4.2 billion) digitisation effort for the next three years. However, continued IT failures highlight that these institutions, as of yet, have not taken the necessary measures to revamp their underlying infrastructure for the digital age.
And with The Treasury Select Committee scrutinising the efforts made by banks and FI to safeguard against future technology failures, the possibility of the government introducing tougher regulations and penalties for future IT failings now opens up.
Facing potential punitive regulatory actions there is a real risk that the financial services sector moves into a reactive mindset rather than focuses on strategic goals. The result, that institutions end up further eroding customer trust and loyalty pushing them into the arms of neobanks.
