Banking IT architectures will and must look different in the post-crisis, post-recessionary operating environment, argue market-watchers. But will banks finally be able to make the long-awaited shift from their legacy systems? Writer Michelle Price

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What should a bank's IT environment look like? How much of it should be operated by vendors and IT service providers? How should banks pay for IT? And what are the implications for complex IT integration projects?

In the wake of the global economic slump, these questions have gained renewed prominence. No longer flush with bloated IT spend, during the past year the world's biggest banks have been forced to rethink and reconceptualise what they require of their IT operations, and how these operations should be delivered, consumed and paid for. And a shift is now well under way. According to a recent chief information officer (CIO) survey conducted by professional services firm KPMG, some 78% of financial services CIOs rank delivering IT value among their top three priorities for the next five years. But what does 'value' in this context really mean?

As the first article in this supplement outlines, it means that the IT function will be called upon to help drive profitability. According to Bryan Cruickshank, global leader for technology advisory at KPMG, financial services "corporate structures will need to evolve to fuse IT and commercial objectives". In other words, as banks seek out new business models by which to prop up their flagging return on equity, they will require new, or at least radically altered, IT infrastructures to support them.

And at the heart of these new models, argues Paul Benati, vice-president of enterprise architecture at financial services IT specialist Fiserv, is speed. "One of the messages we heard loud and clear last year was: 'make it easier for me to consume [IT], and make sure we are delivering business value'," says Mr Benati of his clients. "The need to be flexible and drive speed to market is stronger now then ever before to maintain competitiveness," he adds.

Speed to market means speedier IT change, and vendors such as Fiserv have had to adapt fast to this new imperative. The company recently worked with Chicago-based MB Financial to consolidate the institution's latest string of acquisitions: remarkably, the bulk of the work was performed in less than 90 days.

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Special Report: IT infrastructure, post crisis

Spending spurt

As this supplement outlines, IT spending growth in the financial services industry is forecast to stage an impressive comeback during the next two years, largely in response to these business pressures.

But as with all things IT-related, money may not be enough. The transition from creaky old IT systems to a new IT infrastructure promises to be neither simple nor painless. The long and expensive legacy of decades of IT investment lingers unresolved within many institutions, promising to obstruct the operational changes necessary. But some banks are now grasping the nettle. As Tim Walker, head of the retail banking technology group at Deloitte, reports, many banks are now attempting to address this issue and "bite off larger chunks of their legacy estates than in the past", prompted by the desire to improve business flexibility and speed to market, meet growing regulatory requirements and, of course, to reduce costs.

But for many institutions, the cost involved in writing off existing IT investments and funding new IT implementations would struggle to find a business case, Mr Walker adds. Financial services IT pundits are very familiar with this long-standing problem, but in the new, post-crisis world some voices on the subject are becoming increasingly alarmist. Business strategy consultancy Bain & Company is warning of another looming crisis, as the effects of accumulated IT complexity, combined with recessionary budget cuts, leave banks exposed to major business risks.

As the Santander Group case study on page 63 suggests, the Bain & Company claim may not be so outlandish. The Spanish bank's uncompromising approach to IT change and rationalisation has seen it achieve a remarkable and highly competitive cost-to-income ratio. "Banks are nervous about the Santander model," says Mr Walker. "Those guys are really driving the cost out. The threat is that in the future [Santander] will have such a low cost base that it will allow [the bank] to be [extremely] competitive on the products it offers."

New technology models, in particular the rise of software-as-a-service and the ever-expanding 'cloud' - by which IT services, instead of being deployed and maintained at great expense inside the bank, are delivered over the web by a third-party - are also driving change, however. As the second article in this supplement outlines, banks have stood on the sidelines as other industries embrace the so-called public clouds provided by commercial vendors and IT service providers, but they are beginning to explore the model more readily, attracted to its flexibility and its incredible speed of delivery.

And as IT delivery models change, so too do pricing models.

This report also explores how recessionary pressures have forced IT chiefs to rethink and renegotiate not only how IT is consumed but also how it is priced, in what one CIO reports has been an extremely beneficial exercise for the bank-vendor relationship. But the extent to which this relationship can survive as IT investment rises remains to be seen, just as the promised competitive benefits of the next wave of IT investment have yet to be proved.

Will the post-crisis environment finally force banks to dump their IT junk? We will have to wait and see.

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