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Replacing Legacy Systems in Banks: Opportunities and Challenges

Replacing Legacy Systems in Banks: Opportunities and Challenges

There have been a variety of challenges that face the banks when it comes to updating core systems in favor of technology that better meets customer demands and security standards. It is clearly to the institution’s benefit to explore newer forms of technology, but each back has their own set of barriers to face when deciding which direction to take. Fortunately, there is new software being developed daily to cope with the needs of the digital age as well as core banking system replacements that are built with the advancements banks need to stay relevant and profitable today. We’ll explore the past and its problems as well as the future and its benefits and barriers.

In the Beginning

It’s not news that legacy systems cannot meet the expectations of multiple generations when it comes to accessing their banking information or offering flexibility with how they invest and handle their money.

While some banks have chosen to use an amalgamation of software and hardware to add in mobile features or online tools, there is a stronger case to replace the systems altogether as these piecemeal methods confuse and complicate matters for both employees and customers alike.

These older systems were built on traditional computer programs and computer languages that functioned well at the time, but were not made to handle the additional complex features that customers were growing more and more accustomed to. There were also multiple ways for hackers to manipulate these systems as they had years to become familiar with the bugs and gaps in the code. To top it off, banks have developed a reputation of being untrustworthy and antiquated. Now, there are competitors in the form of Fintech start-ups that are aiming to take crucial business from banks with systems built from the ground-up to accommodate modern customers. While some banks have chosen to use an amalgamation of software and hardware to add in mobile features or online tools, there is a stronger case to replace the systems altogether as these piecemeal methods confuse and complicate matters for both employees and customers alike.

The Evidence for Change

There are systems available now that have been proven to provide greater flexibility and higher revenue in the banks that have chosen to implement them, skirting many of the problems associated with a system overhaul. Banks that have relied on manual workarounds or have attempted to rebuild systems have lost precious man-hours and capital in creating solutions that failed to address the needs of those who interact with the features. For banks who tried to work off their existing platforms instead of replacing, functionality was limited and designed by outside vendors who had a very limited frame of reference as to the bank’s specific culture and processes. The planning process was haphazard and fraught with complications. In stark contrast, replacing the system allows the opportunity to start from scratch which ultimately allows a company to think about the nuances they want in their system and allows for the room they need to stay on top of the technology of tomorrow. In some cases, banks spent two solid years in the planning stages before finally getting the solution of their proverbial dreams.

Opportunities for More

The new banking systems are designed to be intuitive, flexible enough to handle technology changes and implemented in less than 5 years. They’re built with more of the bank’s input, so there’s less resistance of the transition from employees on every rung of the ladder (which cuts down on the rate of user error.)

The new banking systems are designed to be intuitive, flexible enough to handle technology changes and implemented in less than 5 years.

They bring a cohesion to both customer-facing and internal software, and connect them in ways that speeds up practically every process. They cut down on the amount of fires IT has to put out on any given day, and allow for sharable domains for similar functions across transactions. The new systems allow leaders to see what needs to be custom built, and where features like SaaS can be implemented for more generic requirements. It can make loan servicing, account opening and treasury features easier and faster to set up. It allows for better reporting and more accessible data, and improves security on practically every level. Studies have shown that those who replaced their systems in the global tier one and tier two categories have increased their profits by up to 30%. It’s clear that if your banks is dealing with scattered system processes and low customer satisfaction ratings when it comes to services like opening loans and completing transfers, then this is the time to consider changing systems.

Challenges Ahead

Despite the case for change, new technology still raises many concerns for decision makers. Among the larger impediments is margin compression, in that the advancements and upgrades are too costly and have too little ROI to move forward with a huge system change. Leaders are understandably skeptical that the new systems will have to be replaced again in just a few years, causing more upheaval and potential problems. Every time a new system is introduced, employees have to be trained and retrained and each change opens up the possibilities for major mistakes. The planning and implementation phases will require resources that banks fear they don’t have to devote. Banks may also worry about the security measures taken with these new systems, and potentially releasing sensitive data to outside vendors. While these are legitimate concerns, the costs of maintaining old technology wastes money for systems that actively work against customers, employees and IT. The demand for new features will only increase, further adding to these complications as the years progress.

Final Thoughts

Instead of cutting the budget at every corner in order to service legacy systems, there needs to be careful consideration given to the fact that replacing the systems is a smarter long-term bet for the future of an organization. While it will take a significant amount of insight, forethought and expertise to make it happen, banks cannot afford to continue using systems that were built in the 1970s and 1980s any longer. In order to facilitate safe movement and management of customer funds, a bank can only look to the future for solution rather than the past.

2018-07-08T08:23:58+00:00

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