Financial Services at a Fork in the Road

Integrate legacy IT with new digital platforms, or migrate core systems to the cloud?

Legacy IT

In consumer electronics, the technology life cycle lasts 18 months. In financial services, it’s 50 years and counting. Consider that $3 trillion in daily commerce still flows through systems based on COBOL, a programming language developed in 1959.1

But older technology may be reaching end of life. In a survey of banks and fintechs — the emerging technology-based rivals to traditional financial services providers — 75 percent agreed that legacy IT is a bank weakness, and 80 percent said the absence of legacy IT is a fintech strength.2

In short, financial services companies have reached a fork in the road. They must either integrate their legacy systems with new digital platforms or migrate their core systems to the cloud.

Trouble at the Core

Legacy IT includes core systems such as ERP, transaction, payment, branch and ATM hardware and software. As these solutions have aged, challenges have emerged in several areas:

  • Software modifications — Financial services companies have modified their legacy systems over time, adding complexity, higher costs for maintenance and the potential for incompatibilities and unreliability.
  • Limited functionality — At the same time, modifications haven’t kept pace with technology changes. As a result, legacy systems don’t always offer the functionality and flexibility companies need, such as mobile enablement and support for omnichannel operations.
  • Technical expertise — Systems have aged, and so have the people who know how to maintain them. As companies lose technical expertise to retirement, they struggle to find younger workers familiar with an earlier generation of IT.
    Figure 1: Bank Barriers to Digital Transformation
  • New technology — As technology surges forward, legacy IT falls farther behind. Innovations such as blockchain, robotic process automation and cognitive computing will be in use at 50 percent of banks by 2020.3 And banks cite legacy IT as their primary impediment to digital transformation. (See Figure 1.)
  • Security and compliance — As cybercrime evolves, legacy systems will become more vulnerable. In the U.K. banking industry, 92 percent of cybercrime professionals say legacy technology will become a barrier to fighting financial crime over the next two years.5 Likewise, regulations increasingly call for real-time monitoring that can be difficult with legacy IT.

Joint Accounts

Yet there can be valid reasons for retaining legacy IT. Existing systems are a known quantity and may have proven themselves reliable. Companies facing mergers or acquisitions may want to postpone large-scale changes until other integrations are complete. As every CIO knows, any IT migration carries a risk of unexpected costs and interruptions.

Some banks, insurers and advisory firms will continue to rely on their legacy systems. For these companies, the focus will be on maintaining older solutions while integrating them with new functionality.

As loss of technical knowledge becomes a greater issue, partnering with a service provider for data center, managed server and managed network services can provide clear advantages to financial services firms. Look for a provider that has experience integrating legacy IT that can:

  • Execute integration projects without unplanned interruptions that can negatively affect brand reputation.
  • Identify how changes to core systems will cascade to all connected applications and processes.
  • Harmonize structured transactional information with unstructured Internet of Things (IoT) streams to enable big data and analytics.
  • Implement solutions for real-time processing, compliance, mobile capabilities and omnichannel operations.

Out With the Old, In With the Cloud

Still, financial services companies recognize that integration may be only a stopgap. In fact, 60 percent of banks are actively replacing or planning to replace their entire core systems. (See Figure 2.)

Figure 2: Bank Legacy IT Replacement Plans
Increasingly, that means moving to the cloud for flexibility, predictable costs and other competitive advantages. Among asset management companies, 52 percent believe cloud computing will be strategically important.7 At capital markets companies, 60 percent think cloud-based entrants will challenge traditional models.8 And in banks, 90 percent say the cloud helps business.9 In top-tier banks, the cloud will reduce infrastructure spending by 25 percent by 2019.10

But companies that move to the cloud face business-critical questions:

  1. Should we take a big-bang or modular approach? An all-at-once project incurs greater risk, but a phased process involves more time and cost.
  2. Should we simply move legacy applications to the cloud without replacing them? That would seem to save upfront costs and time, but many legacy environments aren’t cloud-ready.
  3. Should we start with easy wins, like personal productivity software, or with the most mission-critical systems, like transactional software?
  4. How will migration affect key issues like security, regulatory compliance and customer experience?

For a migration project of this scope, most companies will want the help of a service provider. Look for an IT partner with experience in financial services — and a technology-independent approach that allows it to recommend the right cloud vendor and environment.

Whether you integrate legacy IT or migrate to a new platform, you need a proven transformation approach — such as CompuCom's Innovation Delivery Framework (IDF). IDF helps companies create both a roadmap for short-term improvements and long-term transformation, and achieve those goals with minimal disruption and maximum value attainment.

Integrating or migrating core financial services systems is a major undertaking. Smart banks, insurers and advisory firms recognize that they’ve reached a decision point. Their results tomorrow depend on the actions they take today.

1 “Banks Scramble to Fix Old Systems as IT ‘Cowboys’ Ride Into Sunset,” Reuters, April 2017
2 “The Disruption of Banking,” The Economist Intelligence Unit, December 2015
3 “IDC FutureScape: Worldwide Financial Services 2017 Predictions,” IDC, November 2016
4 “Innovation in Retail Banking,” Efma, October 2016, cited in The Financial Brand
5 “Financial Services Legacy Systems Threaten to Undermine Fight Against Cybercrime,” Computer Business Review, May 2017
6 “The Need for Speed: 2016 Banking Industry Outlook Survey,” KPMG, 2016
7 “Financial Services Technology 2020 and Beyond: Embracing Disruption,” PwC, 2016
8,9 “Accelerating the Journey to Cloud,” Accenture, 2017
10 “IDC FutureScape: Worldwide Financial Services 2017 Predictions,” IDC, November 2016

CompuCom® is a registered trademark, and Innovation Delivery Framework and IDF are trademarks, of CompuCom Systems, Inc.
Accenture® is a registered trademark of Accenture.
The Economist Intelligence Unit® is a registered trademark of the Economist Newspaper Ltd.
IDC® is a registered trademark of International Data Group, Inc.
KPMG® is a registered trademark of KPMG Int’l.
PwC® is a registered trademark of the Trustees of the PwC Business Trust.
Reuters® is a registered trademark of Thomson Reuters Canada Ltd.

All data cited in this article is used by permission.

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