There is an unavoidable need for banks to identify how they can modernise their operations to suit a 21st century digital economy. Otherwise they risk losing customers and revenue as the market changes around them, according to Intellect, the trade association for the UK technology industry.

As the association gears up to launch its Financial Infrastructure Programme Intellect, which aims to provide a neutral forum to discuss a range of issues relating to the technology infrastructure that underpins the financial system, it has issued the following statement: “It is widely acknowledged that the technology infrastructure across the financial system is exceptionally complex, to the point where it no longer serves many banks and in fact hinders their ability to have a holistic view of their own operations, serve their customers and adapt as the markets around them change. Whilst the financial crisis demonstrated banks’ inability to extract and analyse data relating to their exposures in good time, events of 2012 such as systems failures, rouge trading and money laundering have all been attributed to technology infrastructure that has not been modernised as banks’ operations have expanded over the last few decades.”

It adds: “Financial infrastructure refers to the complex myriad of technology systems that every function within a bank – from assessing loan applications to making payments into accounts – is built upon. It is, to all intents and purposes, the ‘plumbing’ that allows data to flow within and between banks and which informs their operational decision making, from risk to lending, as well as decisions made by the regulatory authorities. Without this technology there is no bank. When it stops working, the bank stops working."

Intellect’s members estimate that approximately 80 per cent of banks’ technology budgets can be attributed to ‘keeping the lights on’ across their complex and ageing technology infrastructure. Only four per cent (approximately) is spent on non-regulatory driven innovation.

Ben Wilson, associate director for financial services programmes at Intellect, says: “The UK’s banks, whilst under severe pressure to implement ongoing reform, are also at a major inflection point where unprecedented regulatory change and seismic market realignments taking place since the financial crisis mean that preserving ‘old ways of working’ will damage their ability to generate revenue, to serve their customers and ultimately to maintain market share against potential threats from new market entrants.”

Keith Saxton, chairman of Intellect’s financial services programme says that, “the challenge for the banks is to see that changes being driven by regulatory mandates are an opportunity to improve their operations and infrastructure on a broader basis - as they will be changing them anyway - and render them more adaptable to a changing market. Those banks that act upon this will ultimately benefit from doing so. Those that don’t, will ultimately risk losing business to competitors that are able to react in a timelier manner to the demands of their customers.”

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