We have entered a new era in banking and financial services. The period of transformation has given way to an era of “agility and flexibility,” driven by relentless technological advancements, fierce competition and the demands of digital-savvy customers.
Traditional banks find themselves at a crossroads of balancing the proven reliability of their legacy systems with the need for agility. And with fintech disruptors, the expansion of big tech into financial services and the increasing demand for embedded finance solutions reshaping the industry, there’s no time to waste hesitating. Modernization is a necessity – not an option.
Legacy technology, the long-standing backbone of banking operations, is becoming a burden. These outdated systems are ill-equipped to cater to the demands of the digital age that require real-time transactions, data analytics and seamless integration with modern SaaS solutions.
The operational costs of clinging to these systems are 20-30% higher due to the maintenance required. This also diverts resources and means a 50% slower time to market for new products as well as higher risk of security vulnerabilities compared to banks that have modernized their systems (McKinsey, 2023).
Finding people with the capabilities and expertise to maintain these systems is also becoming a challenge as the pool of legacy IT talent, such as COBOL programmers, dwindles. As these professionals retire, fewer people have the knowledge required to operate and fix these antiquated systems. As this expertise becomes scare it also becomes costly.
Faced with these challenges, banks are increasingly implementing a strategy of progressive modernization by updating an organization’s existing IT infrastructure incrementally, rather than through a complete overhaul. This enables institutions to build on the strengths of their existing core systems while integrating flexibility through modern platforms that work seamlessly with legacy infrastructure.
Managing Director, Business Development Head, EMEA, E6.
Benefits of modernization
The benefits include:
Accelerated Time to Market: decoupling product development from legacy systems allows banks to launch new products faster, adapting to market changes and customer needs in real-time.
Better Customer Experience: experiences can be both personalized and seamless across all channels, which keeps customers satisfied, reduces dropout rates and ultimately helps create customer loyalty.
Cost Efficiency: maintaining legacy systems generates significant expenses that consume and divert IT budgets, preventing banks from spending on innovation. Investing in progressive modernization, however, is more cost effective and can be tailored to suit the size, scale and needs of an organization – while freeing up resource and budget to go to better use.
New Revenue Streams: the ability to rapidly launch new products enables companies to tap into new markets and unlock additional revenue streams.
Improved Security: companies need not worry about cybersecurity and compliance as modern platforms manage risks by incorporating robust features to safeguard sensitive data against sophisticated threats.
Progressive modernization empowers banks to exceed the limitations of legacy technology while enabling continuous improvement and rapid iteration.
Without having to service legacy tech, banks can shift focus toward innovation and test-and-learn, accelerating their time to market.
If progressive modernization is the “what”, and agility and flexibility is the “why”, then optionality is the “how.” Banks should avoid one-size-fits-all solutions and embrace a “best-of-breed” approach, choosing providers that excel in specific areas, such as card issuer processing.
Embedded finance: the new frontier
The rise of embedded finance, where non-financial companies integrate financial services directly into their offerings, represents a significant shift that banks cannot afford to ignore.
Up to 15% of bank revenues and 25% of retail and SME lending revenues may be derived from embedded finance by 2030 (McKinsey, 2024).
Solutions like Cards-as-a-Service, Wallets-as-a-Service, and Ledger-as-a-Service enable businesses to integrate payment and financial capabilities seamlessly, tapping into a market poised for explosive growth.
UX: the differentiator in the digital age
So often is the case that bank product teams start-off with customer-centric designs but end-up building legacy-centric experiences. Rapid iteration empowered by continuous experimentation – essential for modern DesignOps – is not possible. Without the configurability, functionality, and modularity of modern cloud apps, banks will always be one step behind FinTechs.
In today’s hyper-competitive landscape, user experience (UX) is a real differentiator – and it is becoming increasingly essential for customer acquisition and retention.
Modern card issuer processing platforms enable banks to deliver exceptional and intuitive UX through features such as real-time transaction processing, personalized rewards, and omnichannel integration.
The future of banking will be shaped by those willing to challenge the status quo, embrace cutting-edge technology and move towards a more flexible, agile, and customer-centric future. Those that remain competitive will not be held back by antiquated legacy systems.
We’ve rated the best mobile credit card processors.
This article was produced as part of TechRadarPro’s Expert Insights channel where we feature the best and brightest minds in the technology industry today. The views expressed here are those of the author and are not necessarily those of TechRadarPro or Future plc. If you are interested in contributing find out more here: https://www.techradar.com/news/submit-your-story-to-techradar-pro
+ There are no comments
Add yours