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Shaking off the shackles of outdated legacy systems

According to research released a few months ago by Infosys and Ovum, around three quarters of European banks are using outdated core systems.  Given the great costs associated with core system renewal, this will come as no surprise to banking IT professionals.

We should, however, be concerned at the survey's findings that suggest these systems are affecting the ability of European banks to innovate and accelerate growth.

80% of respondents see these outdated systems as barriers to bringing new products to market, whilst 75% say these systems hinder, rather than enable, process change.

At a time when European banks need more than ever to be focusing on achieving growth, these findings make for difficult reading. For as long as out-of-date legacy systems continue to hinder speed to market, European banking will also remain out-of-date, slow to respond and inefficient.

This problem is not limited to European banks.  Our American counterparts suffer the same problems, caused by antiquated IT systems.

Yet to wax lyrical about the importance of system renewal is to overlook one great problem – cost. Core system renewals cost huge amounts of money, time and effort, representing a risky and expensive undertaking.

The role open standards can play in reducing the cost and risk associated with system renewal is already gaining momentum. It is imperative that more banks get on board – ABN AMRO, UBS and Banco Galicia have all now taken the plunge to adopt IT open standards – in order to reduce banking IT costs, strengthening the business case for core system renewals. Alongside the cost savings benefits, from dramatically reduced integration times, banks’ competitive innovation and growth processes will be reignited.

Celent recently predicted that global core banking spend will grow to $5.1 billion by the end of 2013, with growth expected from Asia and Latin America. These less mature markets now have the opportunity to really take control – their new systems will support and drive both innovation and efficiency levels, whilst their European counterparts, shackled to legacy technology, will continue to struggle with inadequate and archaic structures. Now is the time to start working together, both banks and software vendors, to create a standardised model that we can all benefit from.

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Comments: (3)

A Finextra member
A Finextra member 13 July, 2012, 10:31Be the first to give this comment the thumbs up 0 likes

I totally agree with this Blog. I was just talking to a senior banker from one of the really big global banks this week about this very topic and he said they are fully aware of their legacy IT risk but simply too scared to go and tackle the problem as so many different and important applications are inter related creating a tangles web that is almost impossible to predict what would happen. Rather banks are continuing to overlay new intergration and transformation technology. He said and i agreed virtually every bank is in this situation and they all know it but the risks corporately and proffesionally are too great. Short termism if you like also plays a big part with most CTO and the like having short careers and looking for quick and easy wins

The Chartered Institute of Securities and Investment run proffesional interest forums and the IT PIF is tackling this topic and board knowledge or lack of it at a comming lunchtime PIF debate. Should be interesting

A Finextra member
A Finextra member 13 July, 2012, 13:48Be the first to give this comment the thumbs up 0 likes

Can't agree more on the standardised model that all stakeholders involved in banking technology should follow. Having worked in SOA based channel programs for 3 large banks in Europe, I have pragmatically faced system integration challenges that impacted both cost and time. A standard model that everyone including banks, product vendor and service providers adheres to is the need of the hour.

When can all banking technology stakeholders start using this standard model?

Darren Negraeff
Darren Negraeff - Zafin - Vancouver 21 July, 2012, 07:25Be the first to give this comment the thumbs up 0 likes

Very interesting Hans...there are some very interesting notes and numbers in this article. We've been talking about the challenge of oudated legacy systems and the risks they pose as banks struggle to remain competitive with more agile competitors who can bring new products and offers to market much more quickly. I had not yet heard about open IT standards as a menas to reducing this friction viz reduced integration times and cost savings benefits, but certainly it makes sense as a trend going forward. 

I will have to have a look for that survey you reference - those are very interesting numbers.