Technology sure has advanced since the dawn of the digital era. Remember the early 1960s, when COBOL was developed and the audiocassette was introduced … the early 1970s, when C was invented and the floppy disk hit the market … the early 1980s, when C++ improved on C and the IBM-PC was launched?
No? Nor do we, really.
But you know who does? Many of the world’s largest banks.
In fact, they don’t have to remember the past – they’re still living it. More than 90 of the top 100 banks continue to leverage legacy systems in some shape or form, working with technology platforms they developed in the mid- to late-20th century. In an age when children are programing marketable apps in their teens, the top banks are using systems based on technologies like COBOL, C, and C++.
What’s the problem with living in the past? (I loved the ‘60s / ‘70s / ‘80s!)
Have you seen holiday pictures from those eras? If the clothing and hairstyles aren’t enough to frighten you, these issues should be:
Archaic systems – Maintaining these outdated systems is hugely expensive … and that’s if you can find people who understand these programs and can fix problems, a rare and dying breed
The M&A jumble – Decades of acquisitions have left major banks with myriad systems that don’t play well together, making them increasingly unreliable in providing innovative services and developing a single view of customers
Limited scalability – These systems were developed long before the days of big data; as volumes explode, they can quickly reach the outer limits of space and capability
New demands – As technology expands at light speed, consumers expect newer and more convenient ways to conduct business. Because older systems can’t manage these volumes, banks are continuously augmenting with wrappers and shells. Over time, the architecture can become completely unmanageable
Regulatory demands – Older systems are incapable of addressing the seemingly endless stream of new regulations piling on every year, leading to significant manual work and/or investment in parallel solutions that must be fed with manual data, all of which increases the risk of error
We get it – it isn’t easy to cut ties with the past. These banks face significant hurdles in ditching the old systems and committing to something new:
Cost – New IT doesn’t come cheap; it requires substantial upfront investment, particularly trying in an era when bank profitability is coming under pressure from regulatory fines and other financial stresses
Down time – Banks, and arguably more important, their customers, have become completely reliant on technology. The risk of customers being unable to access their accounts or complete transactions – and the potential hit to the bank’s business, reputation, and revenues – is a nightmare worthy of the worst horror movie any banker can imagine
Data loss – Possibly second only to down time is the specter of data lost during transition, a phenomenon that could cause huge issues like duplication, redundancy, and fraud, all of which could put a bank’s reputation, customers, and compliance at risk
Ready to join the current generation? Here’s what you need to consider
Banks that are relying on outdated systems must appreciate that when it comes to replacing legacy systems the question is not if, but when. Realistically, these legacy systems simply are not equipped to handle today’s demands – both in terms of the complexity/volume of transactions required by customers, as well as the regulatory demands imposed by financial authorities around the globe.
As a first step toward joining the current generation, we offer the following advice:
Because retaining legacy systems is simply not an option, rather than milking the systems for all they can, banks need to determine when is the best time to transition to newer platforms, recognizing that waiting until the final hour may put them at risk of catastrophic failure
Given the pace of digital evolution, the best bet for most banks is to try to at least start their new customers and processes on an updated platform, while slowly, but continuously, transitioning existing customers and processes off of the older solutions
The cost and complexity of this kind of transition begs for outside expertise. Leveraging third-party service providers – which have experience, expertise, well-developed systems, and trained staff – is a smart play. Use of providers’ SaaS and BPaaS models can reduce investments required to develop a new platform, and they have the knowledge and skill to help smooth the transition process of existing customers, as well
It’s time to join the now generation; as painful as the change process is, the technology (not to mention the hair and clothing styles) really are a vast improvement!