The banking industry continues to be a catalyst to the world economy, but shifting customer demands coupled with an increased need for rapidity have raised concerns about what the future looks like.
The transition from analog to digital banking has seen great disruption that continues to drive profound change in financial services. Banks now have to deal with the customer across a range of channels. While some transactions start online and end in a branch, it’s frequently more common to see a full slate of services rendered online. So what does this mean for today’s financial institutions? In essence, there’s a lot of ground to cover.
Legacy banking systems must be upgraded in favor of more resilient and agile digital infrastructure. Not only does a digital orientation help streamline things on the user-end, but it enables banks to more quickly apply upgrades. The key to any legacy-system upgrade is that a company’s brand vision must be preserved and represented amidst the transition. A bank’s digital orientation must echo its own unique point of view and business model while taking into account its competition through a meticulous evaluation of current operations.
This all begs the question of how did we get here, and what exactly does an upgrade from legacy frameworks accomplish? Let’s start with a look at where banks begin their journeys.
Why we should do better.
By now every industry has integrated information technology (IT), but banking was an extremely early adopter. Many, many years ago, IT infrastructure was put in place that laid early groundwork for everything from transactions to customer service. As time went on, customer needs changed and evolved, so the impetus was then on financial institutions to build on top of pre-existing frameworks by adding new offerings and add-ons.
The end result of all of these revisions is that you have legacy architecture with many layers of updates intricately integrated into a bulky, antiquated framework. This makes troubleshooting and upgrades on the backend difficult and revisions on the frontend more of a patchwork job. You can do much more with a modern banking approach.
For example, say a customer is at a physical ATM location waiting to make a withdrawal. This is valuable time to build a deeper relationship with your customer, so what if relevant advertisements for additional offerings—overdraft protection, loan financing, etc.—could be served up to the end-user? And what if these ads were pre-determined based on past transaction trends observed via machine learning? This is absolutely possible with the incredible technological advancements we’ve seen in banking—but it’s not possible without an updated system.
In fact, the original banking systems were designed with an inside-out perspective, and now, more than 10 to 20 years on, these banks face the risk of obsolescence, forcing them to consider options that modernize core banking capabilities and support both current and future business strategies. These legacy systems need to be updated across the board to better enable growth and day-to-day operations.
With every offering comes a long, tedious process of paperwork—and legacy systems hinder implementation of potential automation practices that can both expedite things on the backend and improve the customer experience. These community banks are held hostage by legacy software that simply cannot move fast enough.
To the point of implementing new offerings, this is a major hindrance of legacy software. An upgraded system affords many customization luxuries from AI (artificial intelligence) and machine-learning implementation to improving the ease of a loan process. We’re truly at the point at which if banks don’t adapt rather than utilizing a patchwork legacy-system approach, they could absolutely disappear. From a different angle, legacy systems make meeting standard regulations a much more arduous task. This goes double for smaller banks that are ill-equipped to update and adhere to regulatory-agency requests. Any way you cut it, legacy systems hinder the standard operations of well-run banks. It’s become increasingly more necessary that the cost and time needed for overhauling a legacy system is borne if continued growth is to be ensured.
And so we update.
I’ve documented why there’s a need to go headfirst into the digital revolution; now to discuss how banks are doing this.
An example of bank transitioning in the digital revolution is National Australia Bank (NAB), which recently underwent a technological transformation of its legacy systems. Founded in 1858, NAB has been a stalwart contributor to the Australian banking landscape and is one of the country’s big four financial entities. NAB referred to the transformation of its legacy architecture as “future-proofing” its business. This is an incredibly accurate way of describing the upgrade process. NAB smartly decided to take the long view, and by future-proofing its business now has the right infrastructure in place to deliver a faster, better customer experience. Best of all, it can easily implement technological updates because the digitized backend has been architected for agility and simplicity, to deliver to customers a constant stream of innovation. From an operational standpoint, this also enables UI/UX (user interface/user experience) design as specialists won’t need to know how to navigate the backend. Better design and better results simply from updating legacy systems—NAB did it, and other banks should follow its lead.
Using digital as an effective tool is essential in maintaining a successful bank. Whether you’re a traditional or new age financial institution, the positives from updating legacy architecture far outweigh the time it takes to do a system overhaul. In time, competition will force banks to embrace digital at a pace that the banking industry has never seen before. It’s better to be early than late.