Intellect: Banks need to change their IT infrastructure or risk losing customers and revenue

Trade body urges banks and regulatory authorities to implement change with new programme

Banks need to identify how they can modernise their operations to keep up with advances in the digital economy, or risk losing customers and revenue as the market transforms around them, according to UK technology industry body Intellect.

Addressing banking executives at the launch of Intellect's "Financial Infrastructure Programme" yesterday, chairman of Intellect financial services and financial infrastructure programmes Keith Saxton said: "We struggled when we started looking at this [in 2010] to point ourselves in the right direction because of the problems in the market which are still here today, things that are structurally impeding the market."

Saxon, who is also director of financial services at IBM Research, added: "We should look at this as a five- to 10-year journey. This is not an attempt to rip and replace IT. We are not about to make recommendations like the NHS and build something that is not fit for purpose [such as the National Programme for IT]," he said.

Last August, Intellect published a report that said banks' IT infrastructure was no longer fit for purpose, citing the 2008 banking crisis and recent system failures by UK retail banks as evidence of serious weaknesses.

The most high-profile of these failings came to light when RBS suffered prolonged problems with its IT systems that eventually cost the bank £125m.

In the same report, Intellect estimated that about 80 to 90 per cent of banks' technology spending goes on managing and maintaining legacy systems and that only about four per cent is spent on improving operations and the customer experience.

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Intellect: Banks need to change their IT infrastructure or risk losing customers and revenue

Trade body urges banks and regulatory authorities to implement change with new programme

Intellect's programme aims to "provide an inclusive and neutral forum for all interested participants for progressive thought leadership on issues around IT infrastructure that currently falls between the focus of the banks and the regulatory authorities".

It will comprise five working groups: architecture, data, payments, security, and customer trust and the digital economy.

Andrew Haldane, executive director for financial stability at the Bank of England, told attendees at the programme's launch that he was "optimistic" about the industry's chances if implementing change in its IT infrastructure.

"There have been mini revolutions in other industries and the time is right for disruptive innovation in financial services," he said.

Intellect has also published a report called Financial Infrastructure - Can Banks Afford not to Change?, which highlights the dangers of doing nothing to update banking IT infrastructure.

"There has been no significant change on the retail banking front, where the technology infrastructure is as inefficient as ever and it prohibits banks from knowing their customers or reacting swiftly to demand for products or services," the report reads.

It also warns that providers of digital wallets may want to expand into broader digital retail banking services, rendering established banks as merely transaction and payments utilities, and losing them significant revenues in the process.