Banks and financial institutions were pioneers with the adoption of new technologies back in the 1950s, implementing mainframe computers for digital recordkeeping on an industrial scale. That technology served them well for decades and remains in use to this day, although in the last 10 years the industry has gone through a significant shift: the fintech revolution. A new breed of finance companies has sprung up, leveraging new technologies such as the cloud, big-data analytics and IoT (Internet of Things) to find new ways to serve the market and challenge the old guard’s dominance.
To survive and thrive in the fintech era, traditional financial-services firms have put digital-transformation projects at the top of their agendas. However, while most recognise the need to transform their businesses with technology, working out how to realise that change and safely move away from the legacy systems on which they are so dependent is another issue. The stakes are incredibly high, and one foul move could be catastrophic.
We saw this play out recently with TSB Bank’s IT (information technology) meltdown, which stemmed from a logical attempt to migrate from an outdated core banking system to a brand-new platform fit for the digital age. To the detriment of the bank and its customers, the migration resulted in a barrage of operational chaos and consumer uproar that lasted for more than a month. The extent of the meltdown was such that the Bank of England (BoE) and the Financial Conduct Authority (FCA) issued a discussion paper that outlined the importance of operational resilience, and warned that banks could face fines if service disruptions lasted longer than two days.
Even before we started to see IT disasters play out in the public domain, due to the level of risk involved in large-scale migrations, many IT leaders and CIOs (chief information officers) delayed implementing their digital transformation projects. And now, with the FCA and BoE’s warning, these anxieties are heightened further. The risk is that these points combined could discourage the financial sector from taking on the change programmes they need to be able to survive—when they should be taking steps to move away from their legacy technologies, such as mainframes. And the truth is that unless these financial institutions evolve and embrace new digital services, they’ll have their “Kodak moments” and be left behind.
If it ain’t broke, why fix it?
The mainframe has been the bedrock of most financial-services institutions for decades. And while these systems have served their users well during this time, many major banks are finding that they are increasingly failing to provide the functionality banks require. Not only is it becoming more difficult and more costly to maintain the mainframe as the technology ages, the pool of IT professionals with the specialist skills required is constantly diminishing. Recent technology developments have allowed fintech startups to start their journeys with a clean slate, unencumbered by legacy investments in IT, enabling them to offer a much more agile, personalised and responsive customer service.
With technologies such as big data and artificial intelligence set to disrupt entire markets within the next few years, businesses must move away from legacy mainframes in order to take full advantage of new commercial opportunities. It is also now no longer the case that moving a mainframe to a new environment is time-consuming or risky.
The growth we’re seeing in the fintech space and the changing expectations from consumers about how they interact with the financial-services industry present a challenge for traditional banks, and the mainframe sits at the heart of this. Those that continue to operate on mainframes will find that they do not have the flexibility or agility to develop new applications and offer the innovative and user-friendly services that customers are becoming accustomed to receiving. If large financial institutions are to thrive in the era of digital transformation, they must take the initiative and move to more advanced IT environments that are compatible with the new breed of digital services.
Although the BoE and the FCA’s acknowledgment of the risks involved in IT projects is important, companies can significantly minimise the risk of disruption by adopting an approach that reduces change. When it comes to moving away from mainframes, one of the riskiest tasks is altering programmes and applications, or re-writing code. This approach of re-engineering systems can take many years, often overshooting budgets and delivery dates with far-reaching, expensive and extremely disruptive consequences. Why not keep it simple and limit these risks? Financial institutions have the option of re-hosting their mainframes onto open systems and in doing so simply lifting existing mainframe assets and shifting them to new open platforms. Re-hosting is faster, less risky and helps systems to operate in the exact same way, but many organisations still choose outdated strategies that put them at harm.
There are risks involved in any transformative project, and minimising these should be at the top of any bank’s priority list. Financial-services firms will be in a much stronger position once they have migrated to new systems, achieving the desired outcomes and becoming modern organisations that provide customers with personalised, seamless and uninterrupted services. Transformation does not have to be a dangerous journey. It is therefore imperative that any organisation that is considering a transformation project first identifies any gaps in their knowledge and works with the right partners to secure the smoothest process possible.