Building Resilience in Banking by Overcoming Challenges of Legacy Systems
- By Intelliswift
- 14 March, 2023
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The banking industry has experienced considerable transformation over the years. From how customers access banking services to how banks handle transactions, technology has played an essential role in modernizing banking. Many banks, however, still rely on legacy systems that were implemented several years ago, which can be challenging to maintain. To remain competitive in today's market, reforming legacy systems in banking is essential to build a resilient enterprise. Banks can now leverage new technologies like artificial intelligence, blockchain, and cloud computing to enhance their services, delight customers and reduce costs.
In this blog, we will discuss about the importance of updating legacy systems in banking, some of the associated challenges, and key steps that banks can take to overcome those challenges.
Importance of Modernizing Legacy Systems in Banking
In a highly competitive market, it is imperative for banks to provide stellar customer experience with innovative and convenient digital services that meet and even exceed the evolving needs and expectations of today’s customers. Mobile banking, online account opening, hassle free transaction management and real-time payments are a few examples of many services that banks can offer through modernization. Here are some of the key reasons why modernizing legacy systems in banking is crucial:
Better Customer Experience: Today's consumers expect banking services to be fast, reliable, and available 24/7. Legacy systems may need help to keep up with these demands, leading to a poor customer experience. Modernizing these systems can help banks improve their services and meet the expectations of their customers.
Cost Savings: Legacy systems are often expensive to maintain and require specialized knowledge. According to a McKinsey study, mid-cap banks have the ability to advance their digital goals by allocating 20 to 30 percent of the typical investment required for modernizing core banking systems.
Improved Efficiency: World Retail Banking Report 2022 states that around 95% of top global banking executives think their outdated legacy systems have developed a bottleneck in optimizing data and customer-centric growth strategies. Legacy systems are less efficient than newer technologies, leading to delays in processing transactions. Modernizing these systems can improve efficiency, making handling more significant transactions easier and providing better customer service.
Increased ROI: Updated banking systems enhance customer experience and increase the organization’s reputation, leading to more revenue. Moreover, stakeholders and investors will likely offer monetary support for digital transformation.
Enhanced Agility: Legacy systems can sometimes be rigid and difficult to modify or update, making it challenging for banks to respond immediately to changing market conditions. Modernizing legacy systems can help banks become more agile, with the ability to instantly respond to customer needs and changing market demands.
Challenges Associated with Modernizing Legacy Systems in Banking
Modernizing legacy systems in banking can be a complex and challenging process, as these systems are typically large, complicated, and deeply entrenched within an organization. Here are some of the challenges banks may face when revolutionizing their legacy systems:
Integration with Existing Systems: Modernizing legacy systems can be complex because these systems may not be compatible with newer technologies. Banks must ensure that any new technology they implement is integrated with their existing systems to avoid operational interruptions and ensure business continuity.
Data Migration: Legacy systems usually contain large amounts of sensitive customer information that need to be migrated to newer systems. This can be a time-consuming as well as risky process, and banks must ensure that the data is migrated securely and accurately.
Regulatory Compliance: Older systems may not comply with current regulatory requirements, making it essential to upgrade the system to remain compliant.
Risk of Downtime: Modernizing legacy systems can lead to downtime, which can be expensive for banks. Banks must ensure that any updates or changes to their systems are made outside of business hours to minimize disruptions to their operations.
Steps Banks Can Take to Overcome Challenges
Despite the challenges associated with modernizing legacy systems, banks can take steps to overcome these challenges. Here are some of the best practices that banks can adopt:
Identify Critical Systems: Begin by recognizing the legacy systems that are most critical to the bank's operations and customer experience. These are the systems that need to be modernized first.
Conduct Gap Analysis: Perform a comprehensive assessment of the identified systems to understand their current state, recognize the gaps, and determine the necessary changes. This assessment should include an estimation of the system's architecture, data model, integration points, and security.
Develop a Modernization Strategy: Depending on the assessment, create a modernization strategy that involves the approach, timeline, and resources needed to streamline legacy systems.
Leverage Modern Technologies: Use modern platforms and technologies such as cloud computing, microservices, and APIs to modernize the legacy systems. These technologies can help reduce costs, enhance scalability, provide security and flexibility.
Prioritize User Experience: Keep user experience at the forefront of the modernization process. The new systems should be easy to use, intuitive, and seamless across different channels.
Test Thoroughly: It is most important to test the modernized systems thoroughly to ensure they meet the desired outcomes and are free from bugs and errors.
In conclusion, with modernization, banks can eliminate outdated and redundant systems, streamline processes, and enable faster and more accurate transactions. However, transformation is a process that takes time, and banks need to continuously monitor and update their systems to stay relevant and competitive. Therefore, banks must prioritize updating efforts and invest in technologies supporting their long-term goals and business objectives.
Intelliswift's Fintech expertise enables banking and financial institutions to adapt to changing times and dynamic demands. Our cloud migration services help businesses to migrate and modernize their legacy applications while taking advantage of all cloud-based benefits. Essentially, our aim is to revolutionize your core systems, business models, and applications, which in turn, reshapes your banking business for better growth and increased revenue.
If you are looking to modernize legacy systems in the banking industry to build a future-ready enterprise, please get in touch with us for more information.
