Caught between dated systems and shiny toys

  • By Christian Edwards

Local financial service providers and Australian banks are all too often distracted by the “shiny new toys” that excite customers at the front end, risking core systems that remain in neglect at the back, according to APRA chairman Wayne Byres.

Speaking at the A50 Australian Economic Forum in Sydney last week, the top regulator was largely encouraging in his praise for the Australian financial sector as a relatively ready adopter of fintech, “pretty quick to adapt new technology as it has emerged”, citing new infrastructure, like the New Payments Platform that will facilitate payments 24/7.

However, Byres did not hold back over doubts - supported by the work of Thomas Achhorner, PwC Partner, head of Digital Financial Services - that in Australia’s financial sector there are still broad tracts of key back-end systems either disregarded, unattended or still based on technology that lacks relevance.

“Like many parts of the world, large parts of financial firms’ core operating platforms are still based on technology that is increasingly dated, and not as integrated as it needs to be,” Byres said.

“Companies must continue investment in existing technology platforms while at the same time putting money into new technology which may well replace it. This conundrum exists for all firms we supervise and the issue is going to rise in importance as time goes by."

Powerful new distractions

Achhorner, who drove the world's largest-to-date core banking replacement program at a leading Chinese bank, told AB+F as back ends are “becoming simpler and more commoditized”, sharing these platforms across banks “might become a new strategic pathway” that simultaneously addresses cost, scalability and compliance challenges.

"With the imperatives of digitalisation and customer centricity taking center stage, there is a real risk for many banks to under-invest in the modernisation of their back-end platforms,” Achhorner cautioned.

”The focus of renovation should be less on cramming more functionality - and therefore complexity - into the traditional core but rather on moving key functionality such as business process and business rules management out and closer to the customer."

Byres said the emergence of powerful new technology in financial services also allowed for powerful new distractions and "temptation".

“Particularly with the rise of fintech and potential disruptors, the temptation in the current environment is to devote a larger proportion of any investment budget to shiny new toys at the front end that excite the customer, and perhaps defer a bit of maintenance on the back office functions that make sure the customers’ transactions actually get processed and recorded correctly," he said.

Byres said that, as a supervisor, APRA is “very keen” to see investment in new technology by financial firms, because “we think it offers considerable benefit to the soundness, efficiency and competitiveness” of the financial system.

“The important thing for us is to make sure investment budgets are expanding to accommodate that, and it is not simply funded by a diversion of resources from other essential tasks.”