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Stifled by legacy systems

Many financial institutions are trying to run their critical payments function on disparate, cobbled-together systems, whose complexity and inflexibility make it difficult to respond to new customer needs and market demands. This presents a number of challenges to banks.

Firstly, there are spiraling costs and stifled revenues. It is estimated that managing and maintaining legacy systems still consumes up to 90 percent of an institution's IT budget (in North America and Europe), leaving little more than 10 percent for innovation and program development. In such a highly competitive market, leaving such small sums for innovation and the support of new product development is dangerous.

In addition, innovation is being stifled. Operational staff are fighting to stand still. Neither budget nor resources are available to do much more than maintain the status quo. Innovation (within the boundaries of regulation) in the payments field is vital. But legacy systems can have a deadening impact on innovation in a number of ways. They can reduce time-to-market because of complexity; engender a lack of customer focus because each system gives only a splintered view of each customer; increase operational risk; limit commercial opportunities because there is often little or no cross-channel information sharing; and make liquidity management difficult.

Overall, the pressure of maintaining and supporting legacy systems consumes resources and has rendered payments an expensive commodity rather than making them a strategic and financial advantage. If payments are the life blood of the banking industry, then outmoded technology is clogging its arteries.

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 13 May, 2011, 13:27Be the first to give this comment the thumbs up 0 likes

@Louis B:

Agreed. But the alternatives are still not quite practical, which is perhaps why the post astutely stays away from making any suggestions for them.

At a large UK-based global bank, around five years ago, a newly installed executive management felt exactly the same way about their existing payments landscape as described in your post. They embarked upon a multi-year, multi-hundred-million dollar program to replace scores of legacy point systems with a single global payment hub to handle all corporate payments. Soon after, they realized that the payment hub platform they'd selected couldn't accommodate the diverse set of business processes and transaction volumes found across the globe, so they decided to break down their grand vision into separate hubs for three different markets. They then encountered political, change resistance and other organizational challenges that came in the way of accomplishing even the diluted version of their grand vision.

Long story short, five years, tens of millions of dollars and several top management separations later, some legacy systems have gone but many of them are still around. Even UK- and Europe-based corporate payments like BACS, FPS and TARGET2 don't run off a single payments hub - each needs its own landscape comprising of legacy and modern systems.

Did anyone say ROI? I seriously doubt it. All this reminds me of a two year old analyst report that drew an insightful analogy between Payment Hubs and Godot, as in the Samuel Beckett play "Waiting for Godot"!