Hey big spender – my take on IT spending in the financial services industry
Wed 9 Sep 2020 | Andrew Fitzgerald
When it comes to IT, financial firms are well known for having deep pockets, but is that money being spent wisely?
IT spending can be difficult to justify at times when finances are tight, and even harder to justify when there’s no sign of an upturn in the foreseeable future. Organisations that find themselves fighting for survival are more likely to instinctively want to redirect money to the frontline rather than the back office.
This stark reality sits against the way many financial firms have used technology to push forwards and do new, interesting and very different things. Think about neobanks, those that only operate online, that rely on fintech solutions to connect individuals more closely with investment opportunities (like peer to peer lending, for example). Or, less in the public eye, how investment banks increasingly use AI-driven market analysis to help them make investment decisions.
The back office is the new front office
For lots of firms, including financial ones, the distinction between back-office and front-line is increasingly blurred. When individuals in a financial firm help clients make decisions on the basis of the analysis that’s facilitated by massive amounts of number crunching and the use of AI, they’re using IT as a front office tool. When insurance companies calculate premiums and when new generation banks use fintech tools to help them maintain client relationships and drive new business, they’re also using IT as a front office tool. You get the point. With respect to data management, in many ways, the back office is the new front office.
This point can be taken too far, of course. There is still a back office. It comprises both the hardware that keeps all that tech working swimmingly and the backups that ensure should the worst happen, there is a quickly restorable, complete, system that will be fully operational at speed. Actually, this is so integral to front office working that it really does have at least a toe in the front office itself.
The economics of risk
Analyst Gartner has said that it expects global IT spending to fall by 8 percent in 2020 as a result of the impact of the Covid-19 pandemic and global economic recession. Gartner says this is “causing CIOs to prioritise spending on technology and services that are deemed ‘mission-critical’ over initiatives aimed at growth or transformation.” What does ‘mission-critical’ look like? Drilling into its figures, we find that, Gartner suggests data centre systems will see a 9.7 percent fall in spending, and IT services a 7.7 percent fall.
Financial firms, like every other firm, decide where and how to invest money with at least one eye on risk. Even in more normal times, there is a lot to weigh up, and it is often easy to decide to opt for investing in new tech that will build the business by attracting custom rather than new tech that will keep backup systems up to date and efficient.
Right now, when finances are tight, the danger of squeezing back-end IT spending until it is absolutely necessary is very serious in any sector. In the finance sector, where technology is critical to everyday working, downtime really can be disastrous. Do you remember, back in 2018, when a planned system upgrade at TSB bank as it broke away from Lloyds went wrong and customers were locked out of their accounts? Reports suggested 1.2 million customers were denied access. The reputational damage was immense. The CEO resigned.
A rounded approach
The TSB situation wasn’t a direct result of sweating IT assets to their breaking point: it came about because of planned work. But the continued use of legacy systems arguably played a role in creating the outage when the time came to go it alone.
Even when finances are very tight, it pays to spend money on data management, security and backup/restore systems, to ensure that the whole edifice on which the firm relies is secure, and that backups are complete, reliable and easily restored at speed. This isn’t just about keeping a firm up and running. Legal responsibilities around data protection in the financial sector require robust security systems, and penalties for breaches are intentionally harsh. Customers whose faith if tested will vote with their feet and move providers.
For financial firms, money may be tight now, and the outlook is not suggesting gold at the end of the rainbow any time soon. But with data privacy so important and data insights so strategically valuable, with the back-end increasingly taking a role in the front-end, plus ransomware and other cyberattacks on the rise, it just might be a false economy to leave that legacy data backup technology in place for yet another year. In the balance of risk, it makes sense to invest cash in a data management system built not just for now, but for the future too.