Deutsche Bank is facing significant technology overhaul challenges, the likes of which might make IT teams at the most sophisticated companies beg for mercy. Yet experts say the company, which last month recorded a $6.6 billion loss for the third quarter, must clear these hurdles if it’s going to survive in a sector where consumers expect to manage their money and other financial services from any device.
Deutsche Bank, like many large banks, is paying down technical debt accrued from years of rushed technology choices intended to help grow their businesses. “It is an incredibly painful transformation process,” says Dan Latimore, senior vice president of the banking practice at Celent, a research firm focusing on financial services. “There’s a certain amount of jury-rigging that you can do to keep up with [aging systems] for a while, but it places increasing strain on the back end and at a certain point, the strain is going to break things.”
Dan Latimore, senior vice president of the banking practice at Celent.
During a press conference on Oct. 29, Deutsche Bank Co-CEO John Cryan noted: “About 80 percent of our 7,000 applications were outsourced to a multitude of different vendors. Design was basically done in silos or by joint standards where they were either hardly used or not used at all. The result is that our systems do not work together, and they are cumbersome when it comes to the application and often incompatible. A figure that worries me in particular... is that about 35 percent of the hardware in the data centers has come close to the end of its lifecycles or is already beyond that."
Technical debt is pervasive in banks
The challenges read like a punch list in how not to set up an IT system. But the reality is that many large global banks are grappling with comparable problems, says Jost Hopperman, vice president of banking and applications and architecture at Forrester Research. "The situation at Deutsche is not unusual at many other large tier 1 or tier 2 banks simply because many of them have similar issues, including too many silos, too fragmented outsourcing, and lost control of applications," Hopperman says.
How did some of the world's leading financial institutions fall behind the technology curve? They sacrificed upgrading back-end systems for building new client-facing solutions, ostensibly to generate new revenue. To support those products, they lashed together servers and other back-end tools without regard to how those systems integrate with everything else. “If you do that dozens of times over a couple of decades, you are going to have a mess,” Celent’s Latimore says. And acquisitions triggered additional fragmentation, he adds.