Recent bank IT failures have thrown old legacy systems into the spotlight. Alex Kwiatkowski, head of Financial Insights Europe at analyst and advisory firm IDC Financial Insights, discusses how banks can bring its core systems up-to-date.</p> For decades, banks have implemented upgrades and bolted-on new systems rather than junking older technology platforms. So why is this established practice a problem now?</h3> Many banks around the world have issues with legacy technology and those issues are now starting to play out through failures in technology. Technology failures happen in every industry from travel to retail, but when it’s the banking industry and people are trying to make payments, it’s inconvenient. So what’s behind the failures? Banks’ legacy technology is being asked to perform things that it was never designed to do, because technology and society’s demands have changed at a quick rate. Quite simply something that was designed as a circle now has to act like a square.</p> How have the demands on legacy systems changed?</h3> If you look at core banking systems, which keep all of the account details, most of them were designed before the internet in the 1970s and in some cases the 1980s. They were never designed for online banking and yet they are supposed to be a fundamental part of delivering an online banking service. The volume of transactions and accounts that these systems were designed to handle has changed a lot over the past 10 to 15 years. Banks are under pressure to comply with regulation, which has put a strain on budgets and their ability to invest in core technology. Banks have tried to invest where necessary, but the amount available has not been enough. Another important point is that legacy systems have been heavily customised. We’ve got a real patchwork of technology that is barely recognisable when compared to what it started out doing.</p> Can core systems be replaced without bringing systems to a halt?</h3> Changing a bank’s legacy system is like changing a car’s engine while it’s running. However, it doesn’t mean that banks should therefore do nothing. What needs to happen – and it’s actually starting to happen – is core system transformation, where a new system is run in parallel with the old one. All of the rigorous testing and development work can be done before someone turns the switch off on the old system. Banks’ attitude is now changing to ‘how can we transform?’. I recently spoke to one of the UK banks about a digital transformation strategy. Banks are now realising that they do need to change their underlying technology because it could be a major systematic risk.</p> How soon can we starting see change?</h3> There is definitely a drive towards developing the strategic plan as to what needs to happen. 2014 is when planning is beginning in earnest, and we’re taking about a time span of probably the next five to six years. People can look to 2020 as a realistic time frame for a transformation project. Nothing is going to happen quickly but as long as something starts to happen today, it’s a good sign. Banks may not be speaking about this publicly, but I know that banks are currently looking at this because they realise a significant technology failure can pose an enormous risk to their reputation.</p>