In today’s increasingly digital world, technology has come to be integral to our daily lives. Technology systems have become essential to a bank’s day-to-day operations too, as financial institutions race to keep up with the increasingly digital demands of the modern customer. Technology becoming more prominent in banking means the pressure is on and the need to constantly update and innovate becomes ever so important.
According to our research, however, legacy systems are an inhibitor to the technical aspirations of banks with almost half (46%) of bankers seeing legacy systems as the biggest barriers to the growth of commercial banks.
Yet, despite this, banks are often reluctant to touch these systems for two main reasons. Firstly, legacy systems and processes are known to have provided stability, reliability and security, often without fail. Secondly, there is often a culture of apathy and risk-averse decision making within banks. As a result, many financial institutions have procrastinated, delaying digital transformation projects and leading to having to play catch up.
Now, the pressure is on and change is a necessity. However, with large transformation projects comes an increased likelihood of failure. This is something which was particularly noticeable last year when a number of leading high street banks in the UK, such as RBS, NatWest and Barclays, were hit by service interruptions. Unsurprisingly, given the nature of the industry, the media visibility of these outages can be damaging to an organization’s reputation and its customers’ trust.
So, is the endgame worth the sleepless nights involved with the change management required to upgrade legacy systems?
The complexity of legacy systems
Legacy systems are complex systems that have often been built on monolithic architecture, so any change a bank needs to make requires a great deal of impact assessment to ensure a change to one system does not impact all the others. This requires significant investment in terms of time, resources, thought and, of course, regression testing. Agile and responsive change is not easy to implement.
Additionally, legacy systems will have gone through many changes and fulfilled a vast array of different requirements over several years. This evolution presents banks with several challenges, such as ‘knowledge transfer’, ‘undocumented logic’, ‘technical debt’ and a ‘skills/desire gap’ - all known issues to impede organizations in their desire to be agile when dealing with legacy systems. In fact, 34% of banks say the biggest barrier they face when implementing new technology is a lack of skills or relevant training in-house.
Legacy systems and processes also face pressure from external factors. Regulators driving innovation, fintechs feeding the thirst for information, self-service capabilities and fast decision making, and a new generation of technology evangelists with limited patience for a lack of agility are all pushing financial institutions to focus on transformation projects as a priority.
How can banks overcome these issues?
In order to keep up with the demands of their customers, regulators and fintech companies, banks must change and update the way they manage technology. However, as most banks lack the knowledge and expertise in-house, this is something at which they won’t succeed alone. As such, a good potential solution lies in partnering with fintech companies, which will enable banks to access the services, knowledge, and experience needed to implement or update their product offerings. Especially as 72% of banks expect digitalization and technology to be the most disruptive influences on their industry in 2019.
These partnerships will also help banks to overcome some of the barriers they are facing internally; for example, 32% of banks feel under pressure to save money, while 34% are operating in a risk-averse culture. Additionally, fintech partnerships enable banks to futureproof their technology due to the progressive roadmaps these companies have in place which not only consider but capitalize on new regulations and future customer needs.
Ultimately, in order to deliver the best customer experience and maintain a cutting-edge technology service, banks must move away from legacy systems and they must do it fast.