Almost every sector of the banking business faces the issue of modernizing its outdated banking systems.
Although stable legacy systems fulfill their intended purpose, they were never intended to handle the kinds of digital and data demands present in the current market.
But switching from outdated systems to a contemporary cloud platform is a difficult procedure that comes with a lot of dangers and expenses. Whenever a sensible change is attempted, the greatest amount of risk mitigation will be included.
This article explores practical approaches banks can take to accelerate the process of modernizing their core banking platforms and legacy systems in a manageable way.
Understanding the Imperative to Modernize
Most big banks rely on mainframe computers and programming languages dating back 50+ years to run core banking functions. However, this legacy banking system struggles to support the level of real-time, intelligent, personalized digital services demanded in the 21st century. Reasons banks need to urgently modernize include:
Increased Productivity
Banks and other financial organizations may significantly increase their operating efficiency by modernizing their outdated systems. Modern technologies make it possible to perform transactions smoothly and instantly, which is in sharp contrast to the slow and prone to error operations of antiquated systems.
Enhanced Data Protection and Security
Modernizing legacy systems is linked with strengthened security and data protection in a world where cyberattacks and data breaches are commonplace. Modern systems are outfitted with sophisticated security mechanisms that protect confidential data with the use of blockchain, biometrics, and encryption.
Novel Approaches and Tailored Resolutions
The chance for creativity and unique ideas is one of the most noticeable advantages of this upgrade. Banks are free to provide creative solutions without being limited by antiquated, inflexible procedures. With today's technology, banks can quickly adjust to shifting consumer expectations and market trends while providing services that meet their demands.
Lowering of Expenses
There is a significant decrease in operating expenses associated with the transition from older systems. Financial resources are depleted by maintaining, repairing, and replacing antiquated systems, and the inefficiencies these systems introduce increase operating expenses.
Enhancement of Customer Experience
Delivering exceptional client experiences is the industry's main goal. The use of contemporary systems is essential to achieving this. A bank is better positioned to experience increased operational efficiency, greater security, and cost savings if it provides prompt, secure, innovative, and affordable services.
Defining a Practical Modernization Strategy
Ripping out and replacing entire legacy systems in one giant initiative is nearly impossible. But banks can't afford to make any progress either. The key is to smartly prioritize and pace modernization efforts.
Set Realistic Goals
Don't boil the ocean. Pragmatically focus first on fixing high-risk areas and on digitizing a few key customer journeys rather than trying to overhaul everything instantly.
Take an Incremental Approach
Step-by-step migration gives the flexibility to refine strategies based on initial modernization initiative outcomes. An agile, iterative process also helps manage risk and disruption.
Prioritize Quick Wins
Focus initial efforts on easier upgrades that can deliver tangible quick wins rather than attempting to first overhaul the most complex functions. Fast returns help secure continued investment in further modernization.
Key Strategies for Effective Modernization
Accelerating modernization requires using methods tailored to the constraints of legacy systems. Here are 5 key complementary strategies banks can leverage:
- Encapsulate Systems via APIs
- wrap APIs around legacy systems to enable integration with new channels, products, and providers without having to deeply change underlying systems;
- APIs bring needed agility into legacy environments in a non-intrusive way.
- Use Low-Code Platforms
- visually-driven low-code platforms abstract away legacy complexity allowing faster development of customer-facing solutions;
- empower business users to participate directly in building solutions.
- Implement Domain-Driven Design
- incrementally rearchitect legacy systems using modular bounded contexts around domains;
- reduces entanglement across domains for safer, pragmatic change.
- Refactor Code
- restructure legacy code to be more maintainable and testable without changing functionality;
- makes code easier to understand and change to support future requirements.
- Migrate Data
- one of the trickiest challenges is freeing business data locked in legacy systems;
- data migration to modern databases enables the building of new data-driven digital solutions.
Key Focus Areas for Initial Modernization
The highest priority domains for early modernization are typically:
Channels. Upgrade online/mobile banking and embrace cross-channel consistency.
Customer data. Consolidate data silos for 360-degree customer insight.
Key customer journeys. Improve most frequent interactions like payments and account origination.
Security. Enhance defenses against growing threats.
Critical capabilities for successful modernization. Beyond strategy, banks also need the right skills, partners, and culture to modernize at scale successfully:
Modernization expertise. A dedicated team of specialists in legacy systems, architecture patterns, data migration, etc. is indispensable.
Agile project management. Taking an iterative approach is critical given the complexity of overhauling legacy environments.
Technology partners. Most banks find they need external help from specialized platforms, system integrators, and other partners.
Leadership commitment. Ongoing C-suite support is imperative to drive massive change management requirements.
Conclusion
Done right, thoughtfully revamping aging IT infrastructure unlocks innovation, improves operational resilience, and creates competitive differentiation for incumbent banks being challenged by digital disruptors. By taking a phased, pragmatic approach banks can make material progress in modernizing legacy systems - despite deep complexity. While challenging, with the right roadmap, talent, and partners, modernization is how banks can offer the intelligent, real-time, and hyper-personalized experiences demanded today while also managing risk.
