Broken banks breaking

Source: Stockfresh

29 August 2014

Paul HearnsThe latest failed, or should I say delayed, wage payments from Bank of Ireland raised a bit of a storm as people, quite rightly, were majorly irked at the inconvenience for the second time in a month.

Commentators were quick to offer explanations with the bank itself doing little to stop idle speculation by actually issuing some real information as to what happened.

A glib statement by the bank acknowledged the issue but gave no explanation at all.

Conor Flynn of Rits said on the Matt Cooper show on TodayFM that the nature of the issue and the numbers affected, as discernible from the available information, did not necessarily indicate an IT failure as such, but sounded more like an operator issue between sources and recipients.

Flynn went on to say that the issues many banks are facing are around implementation as they try to modernise, but also as they implement directives such as the new SEPA requirements. He reasons that a lack of investment, as well as the transformational change required over the last few years, has introduced many changes to what had been stable IT systems and that IT departments are stretched to breaking point resulting in these kinds of failures and the more widespread issues such as those experienced by the RBS group, manifested here in Ulster Bank.

To be honest, I’d not argue with a word of that and, from the early information about the issue available, came to much the same conclusion and decided to wait before reporting on the matter. As the day progressed, nothing concrete emerged to say that it was a technical issue and so in the end we didn’t bother, till now.

Considering Flynn’s comments further, I was reminded of a story we carried last month where analyst Forrester blamed management failings for the growing number of botched core banking system implementations.

Research had led principal analyst Jost Hoppermann to conclude that there were four major reasons for the failures, citing an Allied Irish Bank failure from 2007 as one such example.

Hoppermann said that the transformation projects ran into problems because, firstly, the projects were often run entirely within the technology management team, and that secondly, there was a mismatch between a “corporate mentality” and the sourcing model. The transformation teams were then accused of taking ill-designed shortcuts and lastly, there were continued increases in project scope.

“Today’s banking platform transformations rarely fail because the technology is not up to the task,” Hoppermann said. “They fail because the organisation that has to deliver the transformation initiative, typically over many years, isn’t mature enough.”

This I find very hard to reconcile, though not believe.

When I speak to vendors about new technologies, generally speaking, the most ground-breaking and greatest impact ones are most likely to be implemented by financial services industry and banks specifically. This is when my heart sinks because after getting fired up by the wondrous developments, I resign myself to having no concrete examples as the financial early adopters are the least likely to talk about their new toys for fear of giving away competitive advantage.

But the point is that, these institutions and their industry in general have a long history of being at the cutting edge of technology and, more importantly, of implementing it safely. So why, after all of the soul searching of the banking crisis, the central bank stress tests and the transformation efforts of late, have they forgotten how to run IT projects?

The news is littered of late, both at home and abroad of IT failures, both internally and in terms of security. There were the various RBS Group outages, that AIB Oracle problem, a 2013 Co-operative Bank failure and just this week a major hack against JPMorgan Chase and four other US financial institutions.

The Forrester report is fairly unequivocal in its assessment, citing poor leadership, support and worst of all, a breakdown in communication between IT and the business.

Is this a case of the business getting ahead of itself in determining technology directions and failing to either listen to or include the IT people early enough in planning? It is hard to say with any certainty given the secrecy of the sector on its core systems. But what can be said with certainty is that the malaise appears to be widespread and not confined to these shores. As rumours of European Central Bank quantative easing grow stronger, the banks may need to spend some of the new found liquidity on shoring up shonky technology implementations.

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