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Legacy systems are a pain in the bank

Banks today are  no strangers to wake-up calls. They come thick and fast in trade journals. They frame the digital transformation discussion. They resonate with traditional banks, especially when they're delivered  by FinTech companies. Here's one you might consider controversial, to say the least:

“The lack of competence in banking is sometimes overwhelming, and addressing it comes at a risk of being disliked”.

These stirring words featured in an article entitled “Legacy IT is the least of a bank’s problems” posted by the founder and CEO of Auka, Daniel Döderlein. He's probably worth listening to on the subject of legacy systems given that Auka was identified as the fourth fastest-growing FinTech company in the 2016 Deloitte Fast 500 EMEA, one of the 16 hottest Nordic FinTech startups by Business Insider, European Mobile Payments Platform of the Year 2017 by CFI magazine, and ranked in the European FinTech Awards Top 100 for 2017. (Auka is a VC-backed Norwegian FinTech company that provides a platform for banks to issue white label mobile payments products to their private and merchant customers).

When it comes to technology innovation in the financial services sector, Auka has credentials. Worth listening to, on a topic that is certainly worth exploring further. Döderlein suggests that “many banks are effectively running a horse and carriage set-up and they’re competing with folks driving Teslas”. The question is: Can it be that the situation really quite as bad as he makes out? 

Built to last

It's a universal truth that, in general, banks are struggling with legacy systems. One of the issues is the dwindling pool of legacy people; it’s not so easy finding people with the coding skills to provide support, maintenance and fixes for IT estates that for many were way outside their curriculum when they acquired their technology skills.

Big banking systems  produced in the 70s and 80s were written primarily in COBOL, which was introduced in the 60s. Few people are learning COBOL any more, and the average age among the coding community is  well into the fifties. Many coders have already retired, and are being persuaded back into extremely lucrative part-time consultancy to keep banking systems up and running. As this skills pool continues to shrink, the maintenance of legacy systems will present an exceptional challenge.

Legacy systems weren't designed for a digital age. The 70s and 80s was a different world; banks were masters of tech innovation. This was the period that saw the birth of ATMs, BACS and international card payments. It was a period of intense innovation. Many of the core systems that run the finance sector today are the same ones that were built in that first innovation wave. Things slowed up somewhat after that and although these systems were built to last, they weren't necessarily built to change.

Döderlein contends that when the next wave of innovation came along banks lost their impetus. Instead of seizing the opportunity in the early days of the internet, banks invested heavily in client-side software and CD-ROMs. When it became clear that this wasn’t going to cut it, Döderlein says, banks should have taken the opportunity to replace their monolithic legacy system designs. This is when they should have been developing new, simpler and more agile alternatives to deliver online services. They pursued a different strategy, building  modifications over existing proprietary systems.

That was then, this is now

One of the barriers to innovation has been that replacement projects are expensive and time consuming.  Big projects notoriously and frequently fail, damaging corporate and brand reputations, IT department credibility, and customer and shareholder confidence. The time and cost involved in system testing and the prospect of massive end-user retraining programmes can also be daunting.

Against such considerations a stable platform with tried-and-tested processes can look extremely appealing. Legacy systems may manifest aches and pains but, like old grannies, they are often held in affectionate regard. 

Sooner rather than later, banks will have little choice than to invest the time, money and resources necessary to modernise their IT infrastructure if they are to compete in the digital economy. Regardless of the emotion, rationale, fear, or even ostensibly stalwart business case that perpetuates the legacy system scenario, the fundamental truism that legacy systems are a handbrake on service innovation in the finance sector is a compelling wake-up call. It continues to come thick and fast.

Many banks are working through the problem by forming collaborative partnerships with FinTech companies. It's not so much a smart idea as an absolute mandatory strategy for long term sustainability. Things have changed since granny's day. She'd be the first to admit it.



Comments: (5)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 October, 2018, 19:09Be the first to give this comment the thumbs up 0 likes

Lack of trained manpower and other issues with legacy systems are nothing new. The German bank that faced them in 2002 probably still runs on mainframe 16 years later. 

6 Reasons Why Banks Can't Transform Legacy Applications

Still the sky hasn't fallen. OTOH, we're hearing that 75% of legacy migration projects have failed. IMO, the migration narrative is missing something BIG. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 October, 2018, 20:22Be the first to give this comment the thumbs up 0 likes

This just out: 'Old' IT skills still relevant in India.

This article offers a clue of what's missing in the legacy migration narrative: Banks are able to find legacy skills from their technology outsourcing partners.

It also hints at another challenge with this narrative: Open systems to which legacy systems are supposed to be migrated are based on C++, Java, etc., which are themselves over 20 years old and have started showing the characteristics of mainframe systems.

This tweet thread also exposes why problems often attributed to legacy systems can happen equally well with modern systems.

João Bohner
João Bohner - Independent Consultant - Carapicuiba 29 October, 2018, 13:09Be the first to give this comment the thumbs up 0 likes

"It's a universal truth that, in general, banks are struggling with legacy systems."

They must not 'struggle with legacys' anymore.

Nowadays there is technology to treat the Banking Business in a STP way, corporately, completely, exactly and definitely; online, real-time 'eliminating' those legacies.

By eliminating those legacies the Banks will perform the Banking Business with simplicity, agility, flexibility, singularity, reliability, scalability, security, accuracy, completeness, cheapness, resilience and international behavior.

Also Corporate decisions are made over information of business activities, performed corporately, completely, exactly and definitely; online, real-time, allowing the capability to control, advice, and take action immediately accordingly to the business behavior.

Technology for this is there, now!

A Finextra member
A Finextra member 01 November, 2018, 09:18Be the first to give this comment the thumbs up 0 likes

The article covers some familiar ground about the challenges facing trusted IT systems that have kept FS and other industries at the top of their game for decades. But as IT outages suggest, managing change is not always easy and - inevitably - the existing IT infrastructure is scrutinized as the likely culprit.

As was discussed in a recent Telegraph article on the same topic (, the issues FS organizations face, and the cause of their most common problems, is not with what's already there, but with what is being built on top and around it.  For example, if an online app crashes but you can still get money out of the ATM, then clearly the back-end (mainframe and COBOL) system is working just fine, but the new whizzy interface (or its connection to the backend perhaps) isn't.

As the article explores, managing change through modernization is becoming more and more important.  What works today will, in all likelihood, be necessary tomorrow, and next year. Yet changes on top of that, expanding out and evolving from those core systems, potentially embracing cloud, containerization, web and mobile technology, API integration, yes of course that makes sense too. But doing that sensibly, with quality, without the risk, that's the key.

Smart modernization technology exists today to help bridge the old and the new in terms of IT provision. Tooling for better clarity around application change, better integration between backend systems and languages (and processes) and newer age technology, using common tooling, greater access to planning, analysis and testing technology - this is all part of today's delivery toolchain for ALL home grown banking apps, not just the newer digital ones that sit on a phone.

All of which means that such stark, risky choices of ripping out what's there and replacing it with something untried, or doing nothing and withering on the vine - well these are not the only options. Reusing what works and building upon it, totally viable in most cases, is your third option. A good bet would be to talk to providers who understand both the current infrastructure as well as new technology. Bridging that gap is key to a viable solution. 

I blogged recently about modernization for FS at



A Finextra member
A Finextra member 17 November, 2018, 00:53Be the first to give this comment the thumbs up 0 likes

It's a fallacy to think that the problems of COBOL Legacy Systems will be solverd by "Application Modernization".   We need to address the real problem, system complexity.  See  

René Haeberlin

René Haeberlin

Client Director


Member since

13 Sep 2018



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