The Which Group recently published a study [1]stating that the UK banking sector was hit by IT outages on a daily basis in the last nine months of 2018, with 302 reported failures. The major banks had suffered at least one incident apiece every two weeks. This is a highly concerning statistic that exposes the fact that bank outages and IT issues occur much more often than was previously thought[2]. And the impact can cause significant setbacks, financial and otherwise. In one recent example[3], a major bank suffered an outage with costs amounting to over £330 million.
Nick Coleman, Channel Director EMEA of Virtual Instruments, explains why this is happening and what the issues surrounding this trend are.
Regulatory pressure
Firstly, banks are now obliged to report any IT issues to the Financial Conduct Authority (FCA), (and, as in the case of Which, using this data to form their report), IT problems are much more visible. There is greater recognition than ever before on how much serious disruption can be caused by IT outages at financial services institutions for people and businesses. The FCA now regards IT system performance as more important than staff performance. So if a member of staff is signed off of work, it is considered normal business, but if an IT system fails to deliver, it is viewed as a violation. Under regulations enforced by the FCA in August 2018, banks and financial services have to report on how they recover from outages within three months and have been mandated with a maximum acceptable time for systems to be down. They are so reliant on IT systems, it is critical that they take the necessary steps to ensure the business can get back up and running as soon as possible after an outage.
Infrastructure complexity
Secondly, knowing the true root cause of problems before taking any action is key, but a lack of proper infrastructure visibility is preventing banks from effectively managing the situation. With the inherent complexity of today’s hybrid infrastructure brought about by new procurements layered over legacy systems that are not necessarily cohesive, interoperability issues often ensue. The knock-on effects of systems fighting for resources during busy periods can cause latency issues, in turn seriously affecting the performance of business-critical applications. Here, it is not a matter of if, but when.
Over the years, peoples’ perception as to the value of the IT infrastructure has eroded in the eyes of the business.
With digital transformation, IT systems are now beyond human comprehension and require automation and AI-powered IT operations management (AIOps[4]), also known as ‘algorithmic IT operations’, to run efficiently. Unfortunately, IT doesn’t have the investment or influence at board level that it should put the proper performance safeguards and assurances into place. The business insists that their customer-facing applications run as planned, but don’t really care who runs the IT infrastructure for them. They see the infrastructure as an overhead rather than a vital, profit-generating differentiator, giving a competitive advantage.
Lack of performance benchmarks in the cloud
Thirdly, the banking sector has been advised to embrace the cloud and is struggling to migrate applications, often written in the 1980s and 1990s, to a new platform. The cloud suppliers are reluctant to provide a service level agreement (SLA) on application performance, as they do not know the quality of application coding they will be hosting, so there is effectively no one fully accountable if problems occur. This means that at present, a bank can have its customer-facing applications slow down for an hour and as the cloud provider is not accountable, it is not in breach of contract.
For example, performance issues can impact upon banking applications for customer transactions, and if that capability goes down, not only will it be difficult for the IT team to locate the issue and get systems back up and running quickly, there are also implications for the business reputation to deal with following such an incident.
How can this imbalance be addressed?
Bringing insights and the value of IT back to the business
Over the years, peoples’ perception as to the value of the IT infrastructure has eroded in the eyes of the business. This type of thinking is not unique to IT. For example, years ago people used to care about the engine in their cars, but now they just expect it to work and are really irritated if it fails. The same goes for domestic automation: washing machines, dishwashers, stereo systems, etc. These are now just viewed as commodity items to be used and replaced with no emotion. The value of IT in general needs to be recognised and the way to do this is to report on exactly how it is helping the business, in language the business understands.
So how can IT be of more value to the business? Organisations must recognise that a shift in the perception of the importance of the application (which relates to the customer) is needed. As the organisation cares about application performance, and as IT supports the applications, IT should logically also show how well they are running, how cost-efficient they are compared to other suppliers, and how in-house IT has a better understanding of the company direction than any outsourced partner.
Organisations must recognise that a shift in the perception of the importance of the application (which relates to the customer) is needed.
Outmoded infrastructure monitoring methods
In terms of tackling the issue, traditional monitoring capabilities are falling short. The tools are commonly proprietary and simply not able to keep pace with digital transformation occurring today. The core of this recurring outage problem in the financial services industry is that IT teams are simply unable to holistically ‘see’ or create a map of their entire systems environment. Greater infrastructure transparency is required.
Currently, the applications themselves can be monitored using application performance monitoring (APM) tools, – but these only show the application performance outside the data centre with perhaps a bit of hypervisor information. It is a similar story from the switch providers and network monitors as they really only look at their own devices and lack context to other devices and to the applications themselves. The entire hybrid IT infrastructure supporting the application processing needs to be viewed live across the hypervisor, VM, server, network fabric and storage together.
The AIOps solution
AIOps-driven app-centric infrastructure management will be a significant part of the solution. Artificial intelligence applied to IT operations (AIOps) utilises AI and ML (machine learning) to help ensure application and infrastructure performance.
With this holistic approach, AI-based analytics are app-centric, with correlation capabilities that provide highly insightful and integrated views across siloes and end-to-end across the entire infrastructure. In this way, a shared context can be seen across all infrastructure management tools, so that the trends and behaviour of resources can be easily read and understood. With a visual representation of the current infrastructure, IT teams can be certain as to all of the dependencies and exactly which applications are utilising or competing for different infrastructure resources. Thus, potential problems can be avoided in advance, making a meaningful shift from reactive to proactive troubleshooting, saving millions in time, money, loss of business revenue and customer loyalty.
And this is not solely for on-premises; the cloud-based outsourced applications also need this level of scrutiny to ensure performance-based SLAs can be set and then met.
With the ability to assure the performance of their mission-critical applications, banks and financial services organisations place themselves in a position to successfully manage their digital transformation journey, whilst ensuring they meet business goals and most importantly, keep their customers happy.
[1] https://www.which.co.uk/news/2019/03/revealed-uk-banks-hit-by-major-it-glitches-every-day/
[2] https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/
[3] https://www.theguardian.com/business/2019/feb/01/tsb-computer-meltdown-bill-rises-to-330m
[4] “Artificial intelligence for IT operations (AIOps) platforms are software systems that combine big data and AI or machine learning functionality to enhance and partially replace a broad range of IT operations processes and tasks, including availability and performance monitoring, event correlation and analysis, IT service management, and automation.” Gartner – Market Guide for AIOps Platforms. (Published August 2017)
PSD2 promises a radical change, opening up the strictly regulated financial industry to new players. But Djoeri Timessen, the youngest Bank Director in The Netherlands, at the helm of innovative mobile start-up bunq, wonders whether PSD2 addresses the real issues or is simply a stopgap solution.
The much-anticipated revised Payment Services Directive, or PSD2, came into effect earlier this year. It has been dubbed a game-changing regulation. The monopoly of banks on customer account information and payment services is about to disappear. Banks will no longer only be competing with banks, a prospect that looks like it will drastically change the market and maybe even level the playing field.
The problem, however, with PSD2 is that legislation is inherently always on the back foot, making it an unsuitable driver for innovation. The financial world is in the midst of a data revolution with a landscape that is shifting so rapidly, a directive like PSD2 is already outdated before it comes into effect. Legislation dictating technology means, quite literally, that books are trying to keep up with the internet. PSD2 was created in response to the first PSD and after seeing the effects of this second directive, the process will repeat itself and we'll head straight into PSD3. A few years ago, consumers still relied heavily on branches and internet banking seemed like a futuristic prospect. In 2016, mobile interactions had already grown to account for 56% of customer’s banking engagements in Europe[1]. Nobody can beat the speed of technology.
Of course, legislation can and does bring about positive change in our industry. It wouldn’t have been possible for some of the challenger banks to obtain a financial license to operate without the EU’s progressive regulators. Start-ups would have never been able to expand across the EU in such a rapid pace if it weren’t for the European Economic Area (EEA) passport which allows them to offer financial products and services in another EU member state without needing authorisation in each individual country.
“Banking is necessary, banks are not”
In similar fashion, PSD2 accelerates disruption in a protected market. The ability to engage directly with consumers will no longer be just the advantage of banks but shared with corporates, technology firms, FinTechs, and even retailers. PSD2 is yet another step in the Open Banking revolution, providing new players with an opportunity to plug into traditional institutions and build new services for consumers. As Bill Gates once famously said in the mid-90s: “Banking is necessary; banks are not”.
In turn, this forces bank incumbents to rethink their service offering to stay relevant to a consumer that’s asking for financial services that are faster, personalised, seamless and easily accessible. A highly customer-centric strategy is no longer a unique selling point, it has become a necessity - mostly because of the new directive forcing banks to catch up.
On paper, legislation seems to be working. Yet in reality, it’s still only a stopgap at work. Initiatives like PSD2 force a closed off system to become more open, but they don’t address the root cause: the payments industry is still monopolised by bank incumbents that don’t allow any room for competition. It’s the same pattern we saw after the financial crisis: increased supervision and strict legislation were useful to halt the crisis at the time, but the cause was never addressed.
Conflict between opening up and risks
The problems become clear when we look at how banks are tackling the thorny issue of open banking and APIs, the new directive’s main enablers. Banks have to comply with providing TTPs (third-party providers) access to their customers’ accounts, yet there is an inherent conflict between opening up the system to these smaller parties and the risks they might pose. We only have to look at the Facebook and Cambridge Analytica scandal a few months ago to see how third parties might handle user data and privacy poorly. API standards initiated by legislation appear to be a solution, but are those the most user-friendly and safe? Again, technology will evolve more rapidly than the legislation dictating it.
The opening up of banking data, new technology and changing consumer preferences will all contribute to a more open banking ecosystem. But the only thing that will ever drive innovation in this industry is healthy competition in an equal playing field. In every ‘traditional’ market, disruptors are responsible for seismic shifts: Netflix has kept the TV industry on its toes, Uber revolutionised the transportation business and Amazon set a whole new standard for retail. No matter how many band-aid solutions like PSD2 are put into effect, if the banking landscape itself, beyond the realm of payments and account info, doesn’t make room for new agile players, the real problem isn’t addressed. We need a mindset change from traditional financial institutions, one in which the consumer is put first. The new players are already riding that wave, now it’s time for the rest to follow suit. One thing is for sure: it will be an interesting ride.
[1] https://www.cbinsights.com/research/challenger-bank-strategy/
Hours after the EU Referundum results were revealed, UK Head of Banking and Capital Markets at PwC Simon Hunt comments on the impact that Brexit will have on the banking sector in the country.
The UK is one of the world’s leading financial centres. The banking sector plays a major part in generating exports of £23bn to the EU, which helps to drive an overall trade surplus in financial services of £20bn. Retaining this position is the challenge that banks and all stakeholders may now have to consider.
One of the most significant benefits of EU membership to the banking sector is the ability to access the Single Market via the passporting regime and the loss of passporting benefits would have an impact on the ability of banks authorised in the UK to offer products and services for EU clients.
This impact will not be limited to the UK headquartered banks but will also impact non-EU headquartered banks who have used the UK as a base for their European operations.
Overseas banks currently using the UK as a base for accessing the EU market and employing an estimated 115000 staff are likely to be looking closely at their operations in the UK in the context of the leave vote. Find the best PIA Reservation from Pakistan to anywhere in the World with Malik Express.
The result of the vote does not represent the end of the debate that has impacted markets in recent months. Months, and possibly years, of negotiation will now follow before banking organisations will have clarity on what access UK-based FS organisations will have to EU countries or the rules they must comply with to secure this access.
We are already starting to see the short-term impact on the market as efforts are made to reinforce confidence in the UK banking sector. However, history has taught us that UK business is adaptable and the banking sector is one of our strongest industries and will continue to make a major contribution to the UK economy. Collectively, the financial services sector accounts for 8% of total UK economic activity and directly employs 1.1 million people - around 3.6% of the total UK workforce, generating income, investment and exports.
This result could be taken as a major opportunity for banks to work with regulators, investors and clients in order to shape a new rulebook fit for the new climate.
(Source: PwC)
