For decades now, legacy systems have been a mainstay in the banking industry. However, as technology rapidly evolves and customer demands change, relying on this outdated system has posed a massive challenge for many banks and financial institutions (FIs) around the world.
How Legacy Systems Undermine Banks
Legacy systems are deemed detrimental for banks when it comes to implementing digital strategies and technological integrations. Said 50-year-old mainframes are not designed to adapt seamlessly with today’s digital environment, hence hindering any sort of new features that a bank may essentially need to possess to survive in the current financial market.
These systems often bear numerous other drawbacks, which include data integrity and quality issues. These constraints make it challenging for decision-makers to gain access to critical insights in real-time, which then negatively impact the bank’s strategies.
In addition to that, legacy systems are also known for their high maintenance costs, as they put tremendous strain on both the bank’s IT infrastructure and human resources. This is because the older the system, the harder it will be to find qualified candidates who can manage the IT infrastructure accordingly.
The longer that the digital transformation is delayed, the more costs the legacy system will incur from its upgrades, endless security patches, and constant updates to keep the software compatible with third-party solutions.
Benefits of Breaking Free from Legacy Systems
In modernizing the legacy system, banks can break down its barriers, which then allows them to become more agile, flexible, and receptive to changes happening in the industry. The following are the four main benefits that can be derived from this digital transformation:
1. Digital competitiveness
With the legacy system upgraded, the core system can now support the digital features and capabilities required by banks to survive in today’s marketplace. Furthermore, hyper-specific customization for each individual customer experience can now be done as FIs gain real-time access to crucial data and behavioral patterns that may have gone undetected with the previous system.
2. Reduced costs and improved efficiency
With modernized software, banks can optimize their sourcing strategies while also substantially reducing their operating costs. This is because newer systems tend to be offered at a lower price point compared to legacy systems due to economies of scale. By ensuring automation, FIs can also operate at a higher rate of productivity, as repetitive administrative tasks (which can be very time-consuming) can now be automated. This ensures better relocation and deployment of human labor, which lets each employee prioritize more intricate tasks.
3. Greater scalability
By modernizing the core system, the entire organization’s processes can now become more scalable, as the system is designed to readily adapt to slight changes in the market. With a renewed digital environment, banks can have greater ease in integrating with any sort of new digital tools that can help manage their operations better, as opposed to the legacy system, which tends to be rigid and inflexible.
How to Ensure a Smooth Transition from Legacy Systems
When it comes to transitioning from legacy systems to newer, more modern core banking solutions, there are a few steps that banks can consider. First, it is important to thoroughly assess the current state of the legacy system and identify areas for improvement. This will ultimately ease the process later when choosing the digital solutions that can address the issues appropriately.
Next, it is advisable to establish a flexible data platform. Instead of bringing everything into a single new data platform, banks can start small with those sources that can provide them with deep insights into customer behavior or performance. To start, banks usually strategize by integrating modern tools while keeping the legacy core intact. They would start slowly moving core processes into the new digital environment over time. By then, FIs can also focus on decentralization and building new applications that are tailored to how today’s customers prefer to interact with their banks.
To improve the customer experience along the way, banks are recommended to identify key customer processes and map out the specific requirements needed for each step for a more seamless journey. Many banking leaders understand the importance of maintaining simplicity at every step of the digital transformation to avoid unnecessarily creating distracting complexity.
Lead the Banking Industry with INFOPRO
To remain competitive and set themselves apart from their competitors, banks must realize just how critical a digital transformation is and how they should break free from their legacy systems. Though the challenging process ahead can be daunting, finding the right technological partner is a must to ensure a successful change.
Fortunately, when it comes to finding the right partner to realize your legacy system modernization, you have come to the right place. Our team of experts is ready to understand obstacles specific to your organization’s circumstances and help you overcome them.