Big four banks count cost of IT failings

28 Oct 1997

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Fifteen years of IT investment by the big four retail banks has failed to raise their basic profitability.

Instead, it has made them more vulnerable in the market. These are the revelations of a new book, The Banking Revolution: Salvation or Slaughter, to be published at the end of this month.

The book argues that despite shedding thousands of staff and investing heavily in IT, major financial institutions have failed to reduce cost-income ratios. The big four spent 70% of the #3.82bn invested in IT across the financial sector last year.

Co-author Philip Langluth said: 'Banks need a much tighter link between business and IT. If you ask people at the top they'll say that these trends are not apparent.'

Langluth cited key contributors including poor cost benefit analysis after IT systems are deployed and the expense of legacy migration - particularly as a defensive response to match niche players, such as telephone banker First Direct.

Banks now spend 10 times more per employee on IT than they did in 1980 - yet operating costs have escalated massively to #23.6bn per annum largely because of the technology investment.

Meanwhile, the ratio between operating costs and income has remained static. Overall costs have only been reduced by staff cuts. Some banks employ 90,000 fewer staff than in 1989. Yet the big four have little choice but to continue investing.

'Only customer inertia is saving the big banks. They have to invest more in learning about their customers to compete,' said Langluth.

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