Has banks’ under-investment in legacy systems played a major role in the seemingly implacable rise of banking IT system failures and are banks continuing to struggle as a result of cutting too many corners? Chris Dutta reports
Since 2011, there have been countless high-profile software failures in the banking sector — the Tokyo Stock Exchange, ICAP, BATS, Knight, LCH Clearnet to name but a few.
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In the retail sector specifically, the past year has seen Royal Bank of Scotland (RBS), Lloyds Banking Group and The Co-operative Bank all experience major technical outages with millions of customers affected.
The cost incurred by RBS is estimated to be £175m and the bank is now awaiting the outcome of an investigation by the Financial Conduct Authority.
The enormous financial and reputational impact of these failures begs the question: just why are they allowed to happen? And more importantly, perhaps: should they really be happening at all?
There is no doubt that in the age of austerity, under-investment in legacy systems has played a huge role in the seemingly implacable rise of system failures.
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By GlobalDataAs the market puts pressure on banks to deliver new products in highly demanding turn-around times, many have cut corners — and their systems have come up short as a result.
However, cost pressures and short-cuts cannot be blamed entirely for the spate of financial technology catastrophes we are seeing on a near weekly basis.
The reality is that too many institutions fail to adopt a quality culture. Testing tends to be carried out insufficiently or too late, and the process of building systems often lacks basic controls. The result is that critical systems are launched with the view that ‘it will be alright on the night’.
The fact of the matter is this: poor controls and inadequate software testing of complex systems prior to a ‘go-live’ decision are a major contributory factor in the rise of failures.
But for some inexplicable reason this message isn’t getting through. It’s fair to say that on many banks’ boards, the importance to software testing just isn’t being discussed.
For example, in the recently published Parliamentary Commission into Banking Standards, the role of technology was completely overlooked.
While the report acknowledged the outdated nature of some of the industry’s technology infrastructures, it did little else. Technology continues to be seen as a matter for ‘IT’, not those on the board — and this is deeply worrying.
The tech trade body, Intellect, is calling on the government and senior management within the banking sector to start taking the role of technology more seriously.
Not only is there a severe deficit of technology-literate individuals within top-level positions, there is a distinct lack of communication between the banks.
To make matters worse, pending regulations within the banking sector lack clarity, which leads to little coherence between different institutions and the continued use of complex and inefficient systems.
With headline-grabbing collapses on the increase, we’re at the point now where many retail banking institutions need to increase the quality of their systems. It’s not simply a case of investing in and upgrading software test capabilities, but improving the overall level of rigor with which software is delivered.
Fundamentally, banks need to change their mindset and in this respect they could do worse than learn from the techniques applied by engineers and scientists.
Look at it like this: you wouldn’t let a lorry drive over a new bridge without testing that bridge time and again. Likewise, do you think NASA would launch a rocket into space without its scientists testing the systems ad infinitum?
Let’s look more closely at NASA because banks could learn from it. In recent years, the space agency has enhanced its approach to testing mission-critical systems with great success by introducing an Independent Verification and Validation (IV&V) facility.
This facility is responsible for monitoring and assuring all mission-critical software used by NASA. This is done by continually assessing the technology, with the main focus on the definition and design of the software.
This essential testing from the very first stage of the project is to highlight problems when they first arise, as 70% of software bugs that cause IT failures are introduced in the early stages of development.
The cost of using this type of IV&V model compared to the overall savings is negligible, given that early prevention of software bugs costs up to 100 times less than trying to rectify huge issues at the final stages.
Some banks, by contrast, will spend millions to build software but look at the testing of that software as an afterthought. It’s fair to say that lives won’t be lost as they might if a bridge were to collapse or a rocket fail, but the consequences can still be extreme.
In summary, while engineering and software are, on the surface, very different, deeper down they are very similar.
Banks could do a lot worse than adopt the cultural mindset and attention to detail of the men and women who build rockets. Not only would end outcomes be better, there are plenty of savings to be had too!
Chris Dutta is a director of Piccadilly Group
