Banks warned of pitfalls of ebanking

IT directors of retail banks are being advised to keep in mind four priorities when considering computer development, says a report by TCA Consulting.

These priorities include architectural vision to avoid costly short-term investment decisions, evolution of systems as opposed to revolution, choosing the right middleware system and using a modern language such as XML to interface between different systems.

Richard Watrasiewicz, managing consultant in the retail banking practice at TCA, stated in the Retail Banking Package Market report that the latest applications are not the route to operational efficiency. Rather, it is being assessed "how these fit into the mid-to-long-term view of the IT infrastructure of the bank," he said.

On deciding which architectural approach to choose for Internet banking, Watrasiewicz added: "Very few look to the future. Internet banking is hard to do and many just bolt it on to their existing infrastructure."

Out of the two architectural approaches adopted by banks towards Internet banking, Watrasiewicz believes that making the Internet banking arm a standalone operation separate from the bank is preferable to keeping it inhouse.

Halifax, which is launching a direct bank, dubbed Greenfield.co, over the Internet and telephone in May is on the right track, according to Watrasiewicz: "It will be free from any shackles."

This is compared with Barclays, which has kept its Internet banking arm inhouse: "It claims to have the most Internet customers but it is not radical in what it offers," he said.

He also said the cost base is necessarily higher than banks opting for the standalone approach.

Peter Duffy, head of online banking at Barclays, disagrees with Watrasiewicz. "Our strategy is one of integration. Customers have more choice. They can access their accounts normally, come into branches or use the Internet," he said.

On the question of higher costs leading to lower rates of interest, Duffy said: "Customers will allow for some trade-off in favour of better service."

Greenfield.co is spending £100 million on its own systems using 200 developers, considerably lower than the £250 million investment startup for Egg.

Jim Spowart, chief executive of Greenfield.co, said the company's advantage would be "not having to inherit systems. If we do anything new, we don't have to look over our shoulder and can get the right systems for the right job."

Duffy maintained that Barclays' approach offers greater rewards: "We have built our current account and savings systems and are not starting from scratch. We can provide people with a deep level of functionality."