Tech freeze

Upgrade Overload Hits Banks

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I think we need wifi.
  • Why it matters

    Why it matters

    If German banks do not have up-to-date IT systems there is a danger they will fall behind international competitors, damaging their revenues, yet the costs are proving to be a burden.

  • Facts

    Facts

    • About 90 percent of German banks have been forced to cut IT investments while they adapt to new regulations.
    • At one bank in five, half of the budget for meeting regulations goes on IT.
    • Three-quarters of banks say regulation-related IT spending contributes little or nothing to their success.
  • Audio

    Audio

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As the man in charge of Internet technology at the French bank Crédit Agricole, Pierre Dulon wrestles daily with the digital costs of investment and commercial banking.

To make his life a bit easier, Crédit Agricole is currently trying out a new approach. It has partnered with FIS, the U.S. banking technology firm, to launch an IT platform for derivatives trading — and is on the hunt for rival firms to join in and share the costs.

German financial institutions, faced with soaring IT expenses, should be open to the idea. Outdated technologies and computer systems mean their costs are high, and they have the added expense of meeting many new banking regulations.

A survey of IT directors at 30 financial institutions by the consulting firm PPI shows the extent of the problem. At six in every 10 banks, more than a third of regulation-related expenses come from IT, according to a survey. At one bank in five, half of the budget for meeting regulations goes on IT.

About 90 percent of banks have been forced to cut other IT investments, according to the survey, and more than 60 percent have delayed urgently needed upgrades to their IT systems.

“Much is invested in regulations, but little in business processes,” said Thomas Reher, the head of PPI.

Wolfgang Kirsch, the chief of DZ Bank, warned that the overall costs may be damaging. “The obligation to conform to regulations has the potential to overburden banks,” he said recently.

For example, Finanz Informatik, the IT provider for the extensive network of Sparkassen savings banks, spends about €120 million ($149  million) a year on new software or changes to existing software. “A third of that expense is due to new regulatory requirements, and it has continually grown in past years,” said Fridolin Neumann, the head of Finanz Informatik.

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