Members will have seen that Lloyds Banking Group (LBG) has invested £11 million in a fintech start up called Thought Machine. Thought Machine was set up a few years by a group of Google engineers who have developed a revolutionary cloud-based core banking platform called “Vault”.

Core banking platforms are the “information technology that runs a bank’s central nervous system – the software and infrastructure that links services to business units, customers and back-office functions”. These systems not only drive the day–to-day operations of the bank but they are also the core-platform on which new capabilities and growth are built. But the old core banking platforms are out of date and the teams that implement and maintain them have disappeared either through offshoring, retirement or as a result of the endless rounds of redundancies that are a feature of everyday life in LBG these days. Hot wiring ageing systems to meet future demands is becoming an impossible struggle. 

One IT insider said:

“Almost all banks have built up a plethora of bespoke application/scripts over the years to perform tasks that no off-the-shelf products could do. These applications and scripts were developed and supported by in-house technical expertise.

Then the bean-counters came along and thought that offshoring all those technical jobs would be so much cheaper and give the bank more profits.

So, now they are in the situation where ageing scripts and apps are failing to meet the changes that inevitably happen and they no longer have the expertise to make changes without screwing things up.”

With platforms built in the 60s and 70s that use Cobol applications, the challenge for all the big retail banks, including LBG, is how do they move to digital platforms without causing IT meltdowns and customer chaos? Those banks considering changing their platforms will have looked at what happened at TSB with astonishment. That a bank’s IT system could collapse in the space of a weekend and a carefully crafted brand almost destroyed in a matter of weeks is a lesson in how not to do an IT migration. TSB’s IT meltdown has cost it £259 million so far but that’s likely to increase to £400 million, once you take in to account fines from the regulator.

The Treasury Select Committee has recently published a call for evidence on the common causes of computer and systems failures at financial services businesses. The Committee will look at the causes of disruption but also whether regulators are equipped to hold companies to account.

Commenting on the launch of the inquiry, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:

“The number of IT failures at banks and other financial institutions in recent years is astonishing. Since becoming Chair of the Committee 16 months ago, there have been problems at Equifax, TSB, Visa, Barclays, Cashplus and RBS, to name a few.

“Millions of customers have been affected by the uncertainty and disruption caused by failures of banking IT systems. Measly apologies and hollow words from financial services institutions will not suffice when consumers aren’t able to access their own money and face delays in paying bills.

“As bank branches close and customers are ushered towards online services, the availability of those services is vital.

“The Committee has launched this inquiry to consider the causes and consequences of these failures, and will examine what industry and regulators are doing to promote operational resilience.”

Thought Machine has built a retail bank, which it says can do pretty much everything a ‘traditional’ retail bank can do but at a fraction of the cost, with a fraction of the staff and much more quickly. At the moment, it’s a theoretical proposition which hasn’t been tested in a real life environment with thousands of customers using everyday. That’s about to change.

According to sources close to the project team, LBG is planning to use Intelligent Finance, which is part of the Bank of Scotland but was closed to new customers as part of the EU agreement which culminated in the creation of TSB, as an incubator to test whether Thought Machine’s cloud-based core banking platform can work with real customers, in the real world. The testing from Intelligent Finance will in be invaluable in determining whether “Vault” could be LBG’s core banking platform of the future, or just another fintech failure.

A new core banking platform based around the cloud is a paradigm shift for LBG but it could result in thousands of redundancies. Training and up-skilling staff on the new systems of the future should be part of everyone’s development plans now. The Bank has a responsibility for ensuring that its staff are equipped for the future.

Members with any questions can contact us at 24hours@btuonline.co.uk.

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