Vendors and open IT standards: what’s in it for them?

by Hans Tesselaar, Executive Director at BIAN
Publication: Finextra

Much has been said of the benefits of open standards in banking IT. The introduction of open standards will reduce IT costs and improve banks’ flexibility to develop new and innovative products, which will generally improve bank competitiveness in an ever-changing market. It is increasingly accepted by the banking community then that banks have much to gain from a new banking IT landscape. But what about vendors? I often get asked why vendors would sign up to open standards if it’s going to result in banks spending less money on their IT systems — it’s a fair question!

The answer is complex, but can be broken down into two themes: long-term gain and industry reputation.

Intellect, an organisation representing the UK technology industry, recently released figures showing that at present 96% of total bank IT budgets are being spent on regulatory changes and upgrades. Imagine an IT landscape where regulatory and system upgrades cost a fraction of the current amounts, freeing up budget for more innovative IT projects and product development. A move to open standards doesn’t represent a cut in banking IT budgets, but more a reorganisation, with greater investment in innovation.

Critics may argue that when faced with the chance to reduce their IT spend banks will reallocate budget to different business areas. To me, this seems unlikely. The current banking environment is one of greater-than-ever competition, as traditional banks come face-to-face with new challenger banks. The fact is that young banks are focusing their IT spend on innovative and exciting new products, putting pressure on traditional banks to improve on their game. Now more than ever, the pressure is on for banks to invest in IT that makes a difference, rather than spending huge sums on patching up old systems and meeting regulatory demands.

Essentially, my point is this: short-term reductions in costly and inefficient, day-to-day piecemeal IT updates will be replaced with longer-term innovative IT projects.

The second benefit to vendors promoting open standards is less tangible, but relevant nonetheless. The future of banking services lies in collaboration — banks and vendors working together on open standards and co-created solutions. At the moment we have a situation where some major vendors are sticking to their proprietary models, causing huge additional costs for their banking customers. This is no longer a sustainable model, and the industry is increasingly coming round to see this.

It is no secret that banking IT is a multi-vendor marketplace, with banks often working with a myriad of software vendor suppliers and home grown systems at any one time. But I believe that the vendors who are ahead of the curve in promoting open standards will then be best placed to become market leaders when this becomes the industry standard.

The truth is that when implementing a new industry standard across a number of co-dependent players — for example, banks, software vendors and service providers — there will inevitably be a ‘chicken-and-egg’ situation. We have now reached a tipping point at which open standards are increasingly accepted as the best-practice industry model, and any vendors not on board risk being left behind.

My question is this: what is actually holding vendors back from embracing open stand?

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