Technology in banking

This article was written by Mikael Down, BSB Executive Director for Assessment and Insights.

Technology has always performed an important function in banking; and the banking industry has often been an early adopter[i]. Today, banks and building societies face profound changes to their operating models, driven in part by how advanced technologies are reshaping finance, changing consumer and business attitudes and behaviour, and influencing society. This presents risks and opportunities.

As an organisation established to help raise standards of behaviour and competence in banking, there are several reasons why we, at the Banking Standards Board, are focusing on these issues.

Banks and building societies are trying to develop cultures in which innovation is supported and encouraged, and to recruit and retain the best talent

In the BSB’s 2018 Survey, 78% of people on average felt that their firm encouraged innovation in the best interests of their customers (up from 75% in 2016). For the first time, ‘innovative’ was a word that people more frequently used to describe their firm than ‘bureaucratic’. These suggest positive changes that we would like to understand, to help identify what has led to these improvements and therefore build on them further.

Less positively, however, 55% of employees felt that internal processes and practices were a barrier to continuous improvement. Customer-facing employees in both retail banking and commercial banking focus groups cited complex processes and systems and outdated technology as the biggest barriers to serving customers well.

Exploring the environments in which banks and building societies are seeking to innovate would, we believe, help us to understand why some initiatives have succeeded, and why elsewhere progress has not been as evident. With this understanding, we could work with banks and building societies to trial interventions aimed at developing innovative cultures.

IT and Operations employees tend to be more negative about their organisation’s culture than any other function or business line

IT and Operations is now one of the largest areas of banking – accounting for around 22% of the total headcount of our member firms, on average. These employees are, however, generally more negative than those from other areas of their firms. For example, in 2018:

  • 66% of IT and Operations employees believe senior leaders mean what they say (compared to 70% of all employees, on average)
  • 73% feel that people seek and respect different opinions when making decisions (compared to 77% overall)
  • 58% feel that their organisation responds effectively to staff feedback (63% overall)

In other words, employees in one of the biggest – and strategically/operationally important – areas of banking are amongst the most sceptical about their organisations.

The financial crisis taught us about the risks of complexity and homogeneity in financial markets

Complexity was both a cause of the 2008-9 financial crisis, and a factor that exacerbated its scale. Innovation led to the development of complex structured products that few people truly understood.  The financial system itself was highly inter-connected with many feedback loops. Owing to this complexity, when parts of that system came under stress, the effects were transmitted widely.

Homogeneity was also a factor. As Andy Haldane has described: ‘Within the financial sector, diversity appears to have been reduced, for two separate but related reasons: the pursuit of return and the management of risk … When environmental factors changed for the worse, the homogeneity of the financial eco-system increased materially its probability of collapse.’[ii]

We can envisage some of these risks being manifested in the development and use of, for example, automation and machine learning[1]. The models are often complex and require specialist knowledge to understand. Without diversity in the way in which the models are developed, tested and used, errors, vulnerabilities or biases may be widely replicated and transmitted.

A better understanding of the role of technology in banking – aided by what we already know about banking culture – would help to avoid some of the mistakes of the past.

The ethical, legal and conduct risks surrounding the use of many advanced technologies are not well understood

A number of policy and research initiatives are underway to better understand the risks of using certain technologies and processes – such as automation, data science and artificial intelligence – in a range of fields, including financial services. This will almost certainly inform new legal or regulatory frameworks to govern their use, or technical solutions to manage some of these issues. This is vital work.

We know, from our research[iii], that tensions can arise between normative standards and what happens in practice; and principles or rules are unlikely on their own to be sufficient to guide behaviour[2]. We need, therefore, to better understand the organisational environments in which technology is being developed and adopted – how decisions are being taken, and what is guiding those decisions – for us to better understand the nature of the associated risks.

This raises questions like: what sorts of issues are being discussed and considered by those developing technology, and those supervising them? How are potential tensions between objectives being identified, and resolved? How is the customer perspective being incorporated and what outcomes are being considered? What is the nature of the relationships between everyone involved in commissioning, developing, implementing, evaluating and operating technological solutions? What sorts of technology projects are championed, funded or deprioritised, and why? Do boards and executives feel comfortable that they are able to manage the most important risks? An understanding of these issues will be important to designing any interventions that are aimed at achieving good outcomes from the use of technology.

This is an opportunity for the banking industry to show leadership

The existence of the BSB gives the banking industry a unique way of understanding this issue. We are able to undertake independent analysis on the basis of robust evidence, which, through our Assessment, encompasses a large and statistically representative dataset. Through our network of member firms, policymakers, academics and other subject matter experts, we can help design policy solutions and interventions, and promote these in a way that is impartial and independent.

We have, therefore, made technology and culture a core theme for our 2019 Assessment of banks and building societies, and will use the findings to inform our future work programme.

Through this work, the banking industry has the opportunity to show leadership on an issue that is not just pressing for its own sector, but for many others.



[1]For examples of some of the current use cases for machine learning in banking, see:

[2]For more on the limitations of principles, see: Whittlestone, J., Nyrup, R. Alexandrova, A., Dihal, K. and Cave, S. (2019) Ethical and societal implications of algorithms, data, and artificial intelligence: a roadmap for research. London: Nuffield Foundation,

[i]See, for example, Hannan, T. H. and McDowell, J. M. (1984), The Determinants of Technology Adoption: The Case of the Banking Firm, The RAND Journal of Economics 15(3): 328-335

[ii]Haldane, A. G. (2009), Rethinking the financial network, Speech to Financial Student Association, Amsterdam, 28 April 2009, republished by Bank for International Settlements.

[iii]See for example: