Why standards are key

January 12, 2012 — by Hans Tesselaar, Executive Director of BIAN
Publication: Banking Technology

More than ever, banks must adapt to a rapidly changing business environment in order to remain competitive. Financial institutions need to deliver innovative products that enhance the customer experience. At the same time, they have to increase flexibility and reduce costs. However, banks’ IT infrastructures are slowing them down by a lack of interoperability. Every year, the banking industry spends billions on IT projects and proprietary platforms — analyst house Ovum predicts IT spend in financial services will increase to $90 billion by 2015. All players face the same challenges: obsolete software, high integration costs, complex IT systems and a limited choice of off-the-shelf software.

In large organisations, integration costs make or break the business case in the deployment of new applications and purchased packages. The cost level is determined by the degree of standardisation of interfaces from a technical and a definition point of view.

Typically, chief information/technology officers — who must manage squeezed IT budgets against an increasingly complex IT and business environment — view interoperability as the critical building block to greater efficiency, agility and reducing costs.

The need for interoperability comes into stark relief when banks need to upgrade or replace legacy IT systems. The majority of financial institutions are hesitant to go down the proprietary route with less than a handful of banks today building their own software. The most common approach is to purchase a commercially available point solution, with a specific piece of functionality that will support a particular business function or challenge. But often the integration costs are prohibitive or make building a business case particularly challenging.

Some banks are side-stepping the issue by purchasing a front-to-back solution from a single IT vendor that will take on the integration headache as part of the implementation. However, this is a costly and time-consuming undertaking which many financial institutions can ill afford in the present climate. As a result, many are opting to replace specific parts of their existing IT, which have either become obsolete or are difficult to maintain, with off-the-shelf software.