Outdated legacy IT systems are a major stumbling block for traditional UK high street banks as they look to fight back against their often more agile rivals, widely known as ‘challenger banks’, who unhindered by complex, unwieldy IT infrastructures are typically better positioned to innovate.
In a recent survey by Talend, the global data integration leader, nearly half of the banking industry professionals that were polled made reference to the limits of legacy systems as the number one IT challenge facing the sector, with 43% also citing it as the main barrier to realising the benefits of big data analytics.
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Often too, it’s the bank’s existing infrastructure that holds them back from making optimum use of their most valuable asset: their data, as they push to become more data driven to meet the challenges of mobile and online banking. 56% of respondents blamed legacy systems for the lack of data integration while 45% claimed that the quality of their data was preventing ‘real-time insights for the business,’ and a total of 63% of business leaders in all are concerned about the impact of legacy systems restrictions.
Major banks are never going to rip and replace the systems that form the backbone of their business. That’s far too risky an option – so data quality and data integration should be their two top priorities.
Extracting insight from key data is crucial for banks if they want to retain customers in a world where the industry is increasingly pushing to make it easier to change. Recent years have seen the establishment of the Current Account Switch Service (CASS) specifically set up to make the process more straightforward, together with an ongoing push by the Competition and Markets Authority (CMA) to make it easier for customers to take charge of their accounts. Adding to the uncertainty for the big banks, we are living in a world where challenger organisations are achieving ever greater successes.
Indeed, a KPMG report, "The game changers – Challenger Banking Results May 2015" highlighted just how far those challenger organisations had progressed over the 12 months prior to publication. "The last year has been an important one for the Challenger sector," according to the report. "Five banks have listed on the London Stock Exchange, raising over £350m of new capital to fund growth and strengthen balance sheets. Over the same period, lending assets for these banks increased by 16% compared to a decline of 2.1% for the Big Five [HSBC, Lloyds, Barclays, RBS and Santander.]"
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By GlobalDataIt’s a stark reminder of how successfully these ‘new kinds on the block’ have been in laying down the gauntlet, so how can the traditional players fight back?
The good news is there are clear signals that the banks know what they need and want to do to stay ahead of the pack and perhaps unsurprisingly, big data plays a key role in that. More than three-quarters (76%) of the banking professionals agreed that the industry has a clear understanding of the benefits of big data, and more than half (51%) see it as a way to innovate faster and more effectively against industry rivals. Equally, nearly a third (32%) believe that big data can help counteract economic pressures facing the banking industry and a total of 41% see customer demand for access to new products as a key factor. Big data is also increasingly seen as a game changer by banks in helping them to address a regulatory environment that has become increasingly onerous over time since the crash of 2008. According to the survey, 57% of respondents see industry regulations and legislation as the number one area where big data can ease pressure.
This is all positive but banks still face that familiar gap between the vision and reality. There’s a clear divide between the growing understanding of the potential benefits that big data can bring and real world implementations that actively utilise it. Business leaders typically have a positive outlook with 75% claiming their organisation is well advanced in their big data initiatives but answers from more junior managers and professionals tell a different story. For example, today, just 30% of junior managers and professionals make the same claim, probably because they are the ones trying to turn big data promises into a practical reality.
So what’s continuing to hold uptake levels back? The survey highlighted the integration of multi-channel data (referenced by 34% of the sample); managing the data explosion (33%) and gaining actionable insight from customer data (25%) as critical areas of concern. The ongoing shortage of expert resource is another key issue, a problem exacerbated by the continuing complexity of the big data environment. As data science has evolved, the technology required has become increasingly advanced and the pool of engineers capable of using it in commercial applications – or even understanding it – has not grown accordingly. Today, 28% of respondents see their lack of in-house skills as a major barrier to big data adoption. The truth is there are few staff with big data skills on the market and so those with the knowledge are extortionately expensive.
Vendors like Talend have a responsibility to simplify the big data process for financial institutions. Big data integration can be a significant hurdle for banks, but in their quest to become data-driven, they commonly find there are a lack of skills and tools available to alleviate some of these major challenges.
To start seeing genuine value from big data projects, banks must start to embrace technology platforms that simplify the process, reduce the need for complex coding and, of course, that integrate with legacy systems and place graphical tools into the hands of users outside the IT department. Only by so doing will banks begin to excel in their big data applications and ensure that 2015/2016 is the timeframe when big data projects start to show real returns.
