Originally published in the German online publication Springer Professional in January
2016 started badly for HSBC, the London-based bank. An IT issue left UK customers unable to access the bank's mobile banking application for two days in a row, making the headlines for all the wrong reasons.
But it's not just HSBC that has been having technical problems. Banks around the world are being hit by what they call IT problems that cost them dearly in fines, lost business and lost reputation.
The "issues" stem from the banks' decrepit IT systems, which are not fit for purpose. They are a mess of different bespoke platforms and applications developed over many decades. It's no surprise they have problems when you consider that many run over 3,000 different systems and applications.
But that's not all. The piecemeal nature of the technology means the different applications and internal systems can't talk to each other and they offer no visibility in real time. The systems can't compete in the modern fast-paced, banking market and can't respond quickly to the demands placed by changing regulation and the need for enhanced cyber security.
And they're expensive. According to research company Celent, banks spent $188bn on IT in 2014, spending that is growing at 5% a year. Maintenance, rather than innovation, accounts for three quarters of this.
The financial institutions that are growing, taking market share, are often tech companies such as ApplePay, Google and Paypal, rather than traditional banks. They are succeeding because their digital platforms can access complete profiles of their customers, analyse behaviour, and offer relevant advice and services in a timely manner, increasing the chances of take-up. This also feeds into know you customer – helping to prevent fraud and money laundering.
All banks have the data to do this, they just don't have the infrastructure to leverage it. This must change or they will go out of business. Up to 90% of interactions between banks and customers now take place over a mobile phone, leaving the banks little direct face time with their clients, time they traditionally used to sell.
But this isn't a threat; it's an opportunity. Embracing digital banking will give a depth of customer knowledge and allow a consistency of service and the chance to make real-time reactive offers. In addition, digital systems can be programmed to be self-learning, working out that something didn't work and adapting it accordingly.
Finally, digital systems offer the opportunity to share data with other financial institutions to help cut fraud – something the insurance industry has been doing for years.
Digital systems are cutting risk, cutting costs, increasing revenues and creating value. The banks that don't digitise will quickly see their technical issues turning into simple old-fashioned issues of profitability. They won't be able to compete and the end result will be their profits and share prices will fall.