Technical debt is costing banks innovation and agility. Can cloud help?

When top programmers can work anywhere, banks need ultramodern cloud capabilities to retain both customers and talent

By | 4 minute read | March 17, 2021

The future of banking technology is all about connections—to customers, talent, transactions. That's all on the cloud. (Illustrations: Almas Ahmed)

John Duigenan is the new global chief technology officer for Financial Services at IBM. Before being named to the post last November, Duigenan spent years as an IBM distinguished engineer, partnering with some of the largest banks in the world. With the financial services industry now rushing to leverage cloud services in an extraordinary time, Duigenan sat down with Industrious to discuss how banks can overcome today’s most pressing challenges. (Read the second half of this interview next Wednesday, when we discuss the challenges—and solutions—of regulation and security on the cloud.)

How has the COVID-19 pandemic affected financial services?


COVID showed that financial services institutions, at the height of the pandemic, were often unable to provide services to their customers. Clients who needed the most help were unable to connect with their banks meaningfully. Their calls were dropped after being on hold for hours. Chatbots weren’t responsive. Corporate clients were stymied in their attempts to submit loan applications. COVID has created a rush to digitization, a rush to automated service and a rush to consume cloud services to rapidly spin up applications and environments so they can fill the gap during peak capacity events.

But weren’t most banks already pursuing digitization, or talking about it? Has something gotten in their way?

It’s not that banks want to be stuck in the past. They clearly don’t—clients are demanding they offer modern services; competitors are disrupting them left and right. The problem they face is what we call “technical debt.”

Technical debt arises when we create expense in the future by the poor or suboptimal architectural decisions that we make today. For example, if I engineer code with hard-coded values—something we’d never do by modern coding standards—I would need to address that in the future. But addressing that issue has definite costs.

What’s stopping banks from ridding themselves of technical debt?

The reason banks often do nothing to address it is they convince themselves that they have to rewrite a 40-year-old platform, and then they’re looking at a hundred-million-dollar price tag. So they kick the can down the road. But the longer the debt persists, the greater the consequences. Banks get less agile, less able to innovate code. They become more vulnerable to cybersecurity breaches. Addressing those breaches can drain the development budget, so that all the firm can afford to do is fix emergencies rather than deliver new capabilities, entrenching it in a vicious cycle.

Innovation-minded developers must love all that.

Right! That’s actually one of the biggest drains of technical debt: not money but people. Technical debt is a talent issue, too. The more antiquated code that a company struggles to maintain, the more it inhibits the modern tooling and services that developers want to use to build applications. A good developer can work anywhere. They won’t choose to work in a place where the environment is dated. They can go work in companies that are ultra modern with an engaging culture.

It sounds like an overwhelming problem. Where do banks begin?

Banks tend to have the mindset of, “It’s going to cost a boatload of money that I’ll never get approved if I have to replace or rewrite thousands of applications.” That’s where we come in and say: You don’t have to rewrite all of this. There’s a middle path, and it’s an innovation path.

Our application modernization approach is based in containerization, APIs and microservices, data innovation and new ways of working. Effectively, we’re helping banks take their existing code, surround it with a new layer of modern code and applications that can easily interact with the legacy stuff that’s still there and all the new stuff going on around it. That’s not going to cost a hundred million dollars. Instead, you move the ball forward in a way that’s more gradual. In the process, you’ll address pain points around sustainability, talent, culture, delivering things faster and so on.

And this is where data and AI comes in, too—they touch everything. If you want to do application modernization in a meaningful way, you’ve also got to do data modernization. Just like the apps, the data has probably built up over decades, coming from all these sources and mergers. You’ve got to rationalize that, which is again a matter of breaking things down on the cloud. And as you’re doing that, it’s that opportunity to integrate the AI and leverage for improved decision-making.

How is your approach different than other cloud providers?

Their approach largely has been to transform applications one by one, but that doesn’t get anyone to cloud fast or get clients the benefits. It probably costs more money doing it on a one-off basis. The way we’ve been thinking about this is to accelerate the time-to-value for these investments.

So let’s imagine you are setting up a three-year program. You want to see values from within three months to six months of starting, and we provide that. We create ongoing delivery and trust. As we work with clients, we’re building capability into our purpose-built financial services cloud.

The important thing is, it’s industry specific, but it’s not being locked into one cloud provider or doing it by yourself. For thousands of applications, it does take years because, unless you’ve got endless pockets and endless people, this is actual work that needs to get done. It can’t be rushed no more than it can be ignored or overlooked. That just brings you back to where you started, creating new kinds of technical debt that might seem smart now but will cost you in the long run.