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The rapid penetration of digital technology in the banking and financial services industry is largely fueled by the need to stay relevant and to meet rising customer expectations. Traditional banks have been embracing newer technologies for a while now, but this surge in digital transformation has been enabled by FinTech companies and neo-banks that offer traditional products through a tech-first approach.
Customers now have the luxury of handling all their banking virtually, with some banks only operating online! In such a digitally powered scenario, outdated systems in banks hinder their ability to offer omnichannel experiences across communication touch points. According to World Retail Banking Report 2022, 95% of top global banking executives stated that their outdated legacy systems had created a bottleneck in optimizing data and customer-centric growth strategies. Despite this, the modernization of legacy banking systems has been slow.
Challenges Posed by Legacy Systems
- Inability to process data in real-time – Legacy systems lack the ability to collect data for personalization. For instance, a customer withdrawing money from their account will be able to view the revised balance only at the end of the day as legacy systems use the ‘End of Day’ process. While banks have embraced fragments of digital innovation, most banks fear that the migration might be cumbersome and hurt the existing processes, which can affect the day-to-day business.
- Creating omnichannel experiences – Legacy systems are hard-coded without the ability to connect a customer’s digital and physical banking experiences. Banks cannot offer facilities such as self-service and automated KYC as they lack the resources to interlink online interaction with an offline customer service call. With newer firms that offer modern banking experiences entering the market, these challenges can affect the business’s brand image and clientele.
- Cost of maintenance – There is a considerable cost burden for IT infrastructure and human resources. As these systems are outdated, in the eyes of modern technology, there is a need to update security patches to avert cybersecurity vulnerabilities constantly. Also, outdated legacy systems have a steeper learning curve, affecting productivity.
Why Modernize Legacy Systems?
In the era of new-age banking, banks and other financial institutions are taking drastic measures to sustain their position in the market. Banks are forced to upgrade these legacy systems, which have been in existence for decades, as there is a critical need to analyze the data harvested rather than just storage. Although most mid-tier banks are offering digitalization in theory, traditional banks must focus on the banking experience by creating digital-first strategies that can help retain existing customers and to become future-ready. To that end, a recent survey by Capgemini states that only 22% of CMOs directly manage end-to-end customer experiences or have access to complete customer profiles needed to customize their services effectively.
By modernizing legacy systems, banks will be able to focus on process improvements that can help create effective customer engagement and foster long-term relationships with clients. Some of the most significant reasons to modernize legacy systems include:
- Facilitate digital features to accelerate customer service
- Easily update, scale, and accommodate features to be prepared for the future
- Introduce new analytical capabilities to the system through Artificial Intelligence, Machine Learning
- Automate processes for improved productivity
- Reduce security and regulatory compliance issues
How to Modernize Legacy Systems
Modernizing a bank’s system needs to be a continuous process to allow upgrading to newer technologies continually and to strategically leverage them to solve new challenges. Detailed evaluation of existing processes and prioritization of processes that need to be modernized first is essential. By taking a piece-by-piece approach to system modernization, banks can space the expenditure and ensure that employees and customers have enough room to learn the new processes.
- Automation plays a vital role in banking processes. With Robotic Process Automation, banks can improve productivity by automating repetitive processes such as client onboarding, KYC, loan processing, and credit card approvals.
- Artificial Intelligence and Machine Learning help keep up with the growing demands of the industry. By leveraging AI/ML capabilities, banks can understand the behavioral patterns of customers, and build personalized user journeys to improve customer engagement and retention. For instance, using chatbots to answer queries instead of employees ensures customer service is available round the clock.
- Banks are armed with hundreds of data points that can play a huge role in servicing customers. Using Big Data analytics, banks can gain in-depth insights into customer journeys and understand their demographics better to come up with newer products, offer better digital experiences, and focus on areas that need improvement.
Here are some best practices to incorporate:
- Evaluate the existing legacy system to understand weak points that need immediate attention
- Prioritize processes based on available modernization options
- Ensure the modernization process does not deviate from the business objective
- Keep the legacy system alive until the new technology is fully implemented and trained
- Proactively protect data during migration
GS Lab | GAVS for Banking
GS Lab | GAVS’ extensive experience in the banking, insurance, and financial sector and its product engineering/ application modernization expertise helps BFSI organizations leverage technology solutions to retain, reimagine, and reinvent customer experiences. Our digital transformation solutions have facilitated customers to build robust data-driven insights, cybersecurity, cloud, and infrastructure management strategies to forge ahead of competition. To learn more, please visit https://www.gavstech.com/banking-financial-services/.