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Moving Away from the Mainframe, Safely

Marc Benioff of Salesforce predicted the death of the mainframe years ago, famously saying “This is what our customers are asking for – to take them to the next level and free them from the bondage of mainframe and client-server software.” While the COVID-19 outbreak has put many plans on hold, it also shows the importance of scale, resilience and flexibility. Banks clearly need to move away from mainframe – and associated technologies – to participate fully in the digital age. The question is how to make the leap, and do it safely?

Throughout life, our weaknesses are often the “flip side” of our strengths. Ask any athlete what happens when they overtrain their triceps. Invariably the biceps become weaker. In banking, the mighty mainframe has been developed to a level that couldn’t have been imagined in the 1960s, when computing became mainstream. Although some mainframes have been replaced by client servers, for the most part, these represent more of the same. For many banks the technology that once drove success has become a fundamental weakness. So, what went wrong? A look back gives us a better view of the way forward.

What’s in a Core?

Core banking systems have a long history; this contributes to their perception as “legacy.”  Although definitions abound, the most practical description of a core is that it supports the main business of banking. Originally the core was the system of record that tracked the current balance of each customer account and ensured that transactions, such as payments, transfers and interest were applied to the account. While a core is still expected to do all these things, it needs to do them differently in a real-time digital age.

In the digital age, the core is expected to support 24/7 banking with customers accessing their accounts via a broad range of devices across multiple channels, including online and mobile. Customers expect to be able to begin a journey on one channel and complete it on another, seamlessly and without interruption.

Keeping Up With the Challenges

Given that mainframes were never designed to be accessed by customers, it’s impressive that they’ve made it this far. Over the decades banks have implemented some ingenious workarounds to address the evolving multi-channel/real-time challenges, including data lakes and product factories bolted on to existing cores. But these solutions are temporary and tend to be fragmented rather than cohesive and strategic. These mainframe-based technology stacks are complicated and outdated; they increase bank infrastructure costs and keep creating new challenges and choke points. These problems often become further exacerbated when banks make acquisitions or try to increase geographic reach.

For many banks, the technology that once helped drive success has become an impediment to further progress. In an “always on” real-time digital age with agile methods and microservices, the monolithic mainframe simply cannot keep up. Nor can the culture that surrounds it.

The Need to Change the Mainframe Culture

Quite apart from inhibiting what gets done, a mainframe culture also restricts how things get done. Modern technologies bring with them new ways of doing things: The reality is that migrating from a mainframe is as much about cultural transformation as technology. This transformation is essential to realize the benefits of agile methods, DevOps, microservices and continuous delivery that enable a bank to be nimble, customer-centric and responsive to change. Bank of the future technology is not just about processing – it is also about the customer experience, the brand and all that’s good about the bank.

Banks that are wedded to mainframes are also denied the benefits of cloud, which is a prime driver of bank transformation. A move to the cloud can reduce IT overhead by 30-40% and reduce IT incidents by 70%.* Apart from its unique attractions of unlimited scale and elasticity, cloud is the only sustainable way to reap the benefits of modern technologies such as artificial intelligence, machine learning and advanced analytics. A modern bank eliminates guesswork and becomes data-driven.

Lift and Shift or Move and Improve?

Bank transformation is neither easy nor instantaneous; the systems are mission-critical, customized, and complex. But the opportunity cost of holding on to outdated systems is huge. Our world has changed, and technology advances continually; banks must keep up. Financial institutions that fail to seize the full transformational potential of cloud, even those opting for a simple “lift and shift” migration, will eventually put a limit on what cloud can deliver. The greatest benefits are achieved by a radical change in how things are done. Furthermore, a simple migration to the cloud often requires nearly as much effort as a transformation, so it’s worth getting things right from the start.

A Crucial Role for Partners

Banks would be well advised to consider their options for moving away from mainframe technology, and partner with experts who can help them benefit from the experience of other transformations and avoid potential pitfalls. Creative solutions gradually free banks from the restrictions of legacy technology, while offering a progressive path to modernization. For example, solutions may be outsourced back to primary vendors and large periodic software investments replaced by smooth service costs as solutions are accessed through a software as a service (SaaS) model.

Such solutions should generate immediate savings that can be reapplied to other key initiatives, such as modernization or replacement of aging technology assets. In practice the possibilities are only limited by the imagination and forward-thinking vendors should offer technical solutions that are closely aligned to business success. 

The crucial thing for all banks is to make an informed choice and to design a modernization strategy that maximizes freedom to innovate. As Marc Benioff tells us, “You must always be able to predict what’s next and then have the flexibility to evolve.”

 

 * https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/cloud-adoption-to-accelerate-it-modernization

 

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Andrew Beatty

Andrew Beatty

Head of Global Next Generation Banking

FIS

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17 Sep 2018

Location

Toronto

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This post is from a series of posts in the group:

Banking Strategy, Digital and Transformation

Latest thinking in respect to Banking Strategy, Digital and Transformation. Harnessing our collective wisdom to make banking better. Ambrish Parmar


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