Why are financial firms neglecting back office IT?

Prioritisation of customer experience is leaving financial firms exposed to systems failures and data breaches

Glorious mobile experiences provided by challenger banks such as Monzo have redefined customer expectations and put pressure on incumbent financial firms to improve their outward facing tech. But spending by financial services firms on customer-friendly interfaces is coming at the expense of investment in back-office IT systems, according to new research by Pinsent Masons.

Just two percent of financial services companies prioritised investment in back office technology over the last three years, whilst 77 percent prioritised investment in enhancing customer experience.

By over prioritising investment in mobile apps and smart spending trackers, firms are increasing the risk of IT failures and data breaches, explained Pinsent Masons. According to FCA research, there were 600 IT failures at financial services firms in 2018, a jump of 138 percent compared to the previous year.

In April, TSB suffered an IT failure following a botched IT systems migration, which locked 1.9 million out of their online banking services and saw a surge in attacks by fraudsters. The failure cost TSB’s parent firm Banco Sabadell more than 200 million euros (£178 million) and led to the early departure of its chief executive.

Not only do IT failures lead to costly downtime, but they are increasingly resulting in hefty fines. In October, the FCA fined Tesco Bank £16.4 million in October for failing to protect customers against the 48-hour cyberattack that rocked the firm in 2016 and netted cyberattackers £2.26 million.

Alexis Roberts, head of financial services and partner at Pinsent Masons, said: “Financial services companies can be seriously undermined by underinvestment in the back office.”

“The race to capture market share through customer-friendly technology is, understandably, very important but that shouldn’t be at the expense of essential architecture.”

Pinsent Masons says its research also shows 70 percent of financial services see acquiring new technologies as the most important objective of M&A activity, up from 58 percent over the past three years.

“Technology continues to render more traditional M&A objectives, such as increasing market share or expanding into new geographies, as much less important. In crowded markets, financial services companies that fall behind in developing and using technology will find it difficult to keep up,” Roberts said.