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Future-proofing Finance: The Importance of Modernizing Legacy Banking Platforms

Many banking platforms are built on legacy applications, which rely on outdated technology, can be costly to maintain, have poor performance, and require outdated skill sets.

Modernizing legacy applications is part of a broader digital transformation initiative for banks and can provide greater efficiency and flexibility. 

However, many organizations struggle with completing the modernization process due to a disconnect between technical and leadership teams. Therefore, it's essential to understand when and why to modernize legacy systems to stay competitive.

Why Modernize Legacy Systems

why modernize legacy systems

1. Business Drivers

For banks and finance-related systems, it's crucial to upgrade to newer software systems that can keep up with changing business needs. 

Outdated systems can compromise business efficiency, and revenue, and hinder mergers, acquisitions, and partnerships. 

Legacy systems may not be able to handle big data, limiting an organization's ability to gain insights and make informed decisions. 

Additionally, if the system lacks the flexibility to adapt to business models, processes, or scale of operations, it may lead to system crashes, slow performance, or other issues. 

Customer support is crucial for customer-facing systems, especially for legacy systems that tend to have more issues. Companies should allocate resources to provide 24/7 customer service to promptly resolve any problems. However, modernizing the system may be more cost-effective in the long run instead of relying solely on customer support.

Therefore, upgrading to modernized systems that can scale with your financial institution is necessary to drive growth and success.

business drivers

2. Additional Costs

Legacy banking platforms come with additional costs such as specialized onboarding and the need for 24/7 customer service to address end-user problems. 

On-premise costs can also be high due to the administrative expenses involved, and legacy software requires constant maintenance and support, which can strain the IT department.

If not properly maintained, these systems may experience frequent outages and downtime, leading to costly business disruptions.

Many of these costs can add up over time and can be avoided by modernizing a banking platform. While modernizing might come with upfront costs, it nearly always pays off in the long run.

additional costs

3. Security Issues

Legacy banking platforms and finance-related systems may not necessarily be insecure or non-compliant yet, but there is a higher probability for outdated systems to become more vulnerable to multiple security threats.

a. Lack of Vendor Support

Legacy software systems pose a significant risk to a company's data because vendors typically stop providing support for these systems after a certain period of time. 

This means that critical updates, patches, and new modules are no longer available, leaving those who continue to use the platform vulnerable to security threats and other issues. As a result, these businesses may be at greater risk of security vulnerabilities, data loss, or system failures.

b. Vulnerability to Security Threats

Outdated systems are often more susceptible to security threats such as malware and data breaches. They may not have been designed with modern security features in mind, leaving them vulnerable to attacks or unable to detect them. 

For example, older systems may not have proper authentication protocols, password security measures, or encryption methods that are compliant with current industry standards. This can put sensitive data at risk and can have serious consequences, including financial loss and damage to reputation.

c. Compliance Challenges

Legacy systems are often less compliant because they are based on outdated technology and may not have been designed with current regulations in mind. This can lead to compliance challenges and put organizations at risk of legal and financial penalties.

For instance, outdated systems may lack the necessary controls and features required to meet current regulations, such as the Payment Card Industry Data Security Standard (PCI DSS). 

It can also be difficult to update and maintain these systems, making it challenging to implement changes and updates needed to maintain compliance, and can put businesses at risk of legal penalties and reputational damage.

security issues

4. Difficulty in Maintaining Systems

a. Performance Issues

Banking platforms that rely on legacy systems can cause significant inefficiencies and productivity loss due to slow and cumbersome operations, crashing, and failing to perform as expected.

b. Difficult Hiring

One challenge with modernizing banking platforms and finance-related legacy systems is that they may be built on unpopular technology stacks, making it difficult to find developers or support personnel with the required skills. 

Outdated software with unoptimized interfaces can slow down business operations, making staffing more difficult and expensive.

c. Challenging Integrations

Another potential challenge is the need for a large amount of custom code and workarounds to integrate legacy systems with new tools. 

This can make the modernization process more complex and time-consuming, requiring the expertise of a technology partner with experience in legacy systems.

d. Problematic Maintenance 

Outdated legacy systems may also lack proper documentation, making it challenging to troubleshoot, maintain, and update them. 

This can result in further problems, such as introducing new bugs or incompatibilities that can cause the system to fail or become unstable.

e. Hard to Make Changes and Add New Features

Legacy systems may be built on custom code and based on obsolete solutions, resulting in high expenses to make changes. They may also require extensive downtime to implement updates or changes, leading to lost productivity and revenue. 

Modernized systems can be built using standard, off-the-shelf software components and common modern approaches, making it easier and less costly to make changes. 

Additionally, modernized systems can be designed to minimize downtime during updates, improving overall productivity and reducing revenue loss.

maintenance

5. Poor User Experience

If providing a good user experience is a foundational piece of your bank or financial institution, then having well-functioning and accessible systems is of the utmost importance. Legacy software can sometimes have issues that appear to users before bank managers even realize them - from an unintuitive user interface and slow performance to lacking features and functionalities.

a. Unintuitive User Interface

Legacy software often has an outdated and unappealing user interface, which can result in user errors, incorrect data, and lost productivity. Updating legacy applications can improve user workflows and provide a user-friendly interface that is easy to navigate and use.

b. Slow Operational Speeds:

Legacy software can lead to slow operational speeds and inefficient workflows, which can impact user experience. Outdated systems may cause frequent lags, glitches, and crashes that hinder the ability of users to operate at their desired pace.

c. Lacking Popular Features:

If legacy systems lack the ability to add new functions or require significant custom code to implement even simple features, it may be time to consider modernization. Failure to update systems can result in losing potential earnings to competitors who are using better tools and modern software. For example, in the Payments industry, some legacy systems may not support newer payment methods, like digital wallets, contactless payments, or instant bank transfers.

d. Device Dependent:

If the software is device-dependent and has no mobile capabilities, it may limit flexibility and mobility. This can lead to falling behind competitors in terms of performance and revenue. To introduce a mobility strategy, mobile tools can be added to legacy software. However, older systems may require significant custom code to work with the new tools, which can cause integration issues.

unintuitive user cx

Take Advantage of the Benefits of Modernization

I’ve seen firsthand some of the advantages our banking and fintech clients have gained from modernizing their legacy applications or platforms.

These benefits include improved performance and efficiency, increased security, better integration with newer technologies, and the ability to more easily adapt to changing business needs and requirements, including mergers and acquisitions. 

Modernization can reduce maintenance and support costs, and improve the user experience for employees and customers.

Additionally, modernizing your legacy system will help your business:

  1. Be more competitive

  2. Increase user retention

  3. Hire more easily

  4. Scale (keep up with trends, the potential for big data, integrations, etc)

Making the Decision to Modernize

All businesses, including financial institutions and fintechs, will eventually face the difficult decision: continue with the risks and drawbacks of their legacy applications, or accept that replacing them might be difficult at first, but will help them grow in the long run. 

While it is important to eventually modernize your legacy systems, it is not always necessary to do so immediately. Software modernization is a significant part of the digital transformation process and requires careful planning and a solid implementation strategy. 

Partnering with a reliable technology provider can help to mitigate the risks associated with modernizing legacy systems and ensure the best possible outcome.

By embracing digital technologies and updating or upgrading outdated features and functionality, you will ensure that your systems are equipped to be competitive in the modern market.

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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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