Resistance to change stalls UK banks' tech modernisation

A new report by SaaScada, entitled "Core Banking Modernisation: The Pitfalls and The Promises," reveals significant obstacles impeding the progress of banking innovation in the UK.

The research highlights a prevailing culture of resistance to change within the sector, which is preventing effective modernisation efforts despite a widespread recognition of the need to update core banking systems.

The study, which surveyed 150 heads of innovation at UK retail and business banks, identified that 77% of respondents believe banks must modernise their operations. However, more than two-thirds (67%) report an inability to discard legacy technology because it was chosen and implemented by current decision-makers. Furthermore, 80% noted that their boards are reluctant to approve high-risk projects, exacerbating the culture of resistance.

"To fully reap the rewards of cloud-native core banking, banks must transform their culture, choose the right technology from the outset, and put customer-focused objectives in place," commented Nelson Wootton, Co-Founder and CEO at SaaScada. "Banks need to act now, as standing still is an existential threat putting them at risk of losing out to competitors, shrinking their market share, and struggling to meet compliance demands."

The report reveals that while cloud migration is viewed as a key goal, it is fraught with challenges. Of the banks surveyed, 94% have either migrated or are in the process of migrating at least part of their core banking infrastructure to the cloud. However, the process has proven to be problematic for many. Among the 73% that have embarked on this journey, 57% have experienced service outages and disruptions, and 51% have racked up technical debt that will result in future workloads. Additionally, 54% are struggling to decommission their legacy technologies.

The study also discovered that not all cloud-based core banking solutions live up to expectations. Of the 60% of respondents who have made the transition, 51% reported that they have not achieved their stated goals. Furthermore, 57% still face challenges with implementing changes or launching new products at the expected speed, and 41% have found it difficult to access necessary data after implementing cloud-based systems.

SaaScada's research indicates that successful cloud migrations hinge on thorough planning from the outset. Yet, this is where many banks first encounter obstacles. Two-thirds (65%) of respondents pointed to organisational policies as impediments to leveraging their core banking technology fully. Meanwhile, 61% cited a lack of skilled talent as a significant challenge, and 58% have had to deal with changes in project scope, leading to increased timelines and costs.

Issues related to the Request for Proposal (RFP) process were also prevalent, with 77% of respondents critiquing RFPs for being too prescriptive and focused on minor details rather than desired outcomes. Additionally, 67% believe that the RFP process often revolves around risk-aversion and internal politics.

The report underscores the varied approaches banks are taking towards migration. Of the 73% of banks that have migrated or are in the process of doing so, 41% have opted for a concurrent approach, which can limit the value of modern architecture and increase costs. Nearly a third (29%) chose a straight switchover, running the risk of outages and disruptions, while only 30% adopted a co-existence model, allowing gradual modernisation with reduced disruption risks.

"It's madness that nearly a third of banks opted for a straight switchover approach. It's like carrying out a heart transplant with the patient walking about," added Wootton. "Banks must select smaller but high-impact systems to migrate one at a time to reduce the risk of disruption while meeting customer needs. Bitesize projects prove how banking transformation improves efficiency, increases speed to market, and unlocks new revenue streams while keeping costs low. This will help win over hearts and minds from the top down and ensure banks get the full value of cloud-native core banking."

The findings are based on data gathered in April 2024 from 150 UK-based business heads and C-suite executives at retail and business banks responsible for product innovation.