Restack & Resume: How Banks are leaving legacy systems behind?

  • By David Johnson, Client Partner – Financial Services, Publicis Sapient

Virtually every aspect of life is moving online, bringing opportunities for banks but also challenges for those encumbered by inflexible legacy technology.

Customers in Australia are used to completing payments and transfers online and receiving statements electronically. Cash use has been declining for years as per the 2019 Consumer Payments Survey by the Reserve Bank of Australia.

Since the start of the Covid-19 pandemic, consumers and businesses have only become more comfortable with the digital world, as lockdowns forced them to increasingly interact online and transact electronically.

New technology has allowed nimble businesses, from Amazon and Apple to challenger banks and fintechs, to introduce compelling experiences for digital-savvy customers. This has raised the standard that customers expect from all product and service providers.

Major banks are finding legacy systems are not flexible or secure enough to meet emerging demands. This is impeding their ability to compete.

Legacy technology cannot capture or process the volume of data needed to improve customer insights or allow business decisions to be made in, or near, real-time. Traditional business models, built around product silos, further limit banks’ ability to tap into and use the massive volumes of data available.

Transforming legacy banking technology to a fully digital system is expensive and time consuming but major banks know they need to invest to retain market share and win new customers.

Around four out of five banks have a clearly articulated digital transformation strategy, according to the Global Banking Benchmark Study, which surveyed 1000 top banking executives from around the world, including in Australia. A similar proportion acknowledge the pandemic has made improving digital skills and capabilities more urgent, while 70 per cent say it had highlighted weaknesses in their customer experience.

But many banks are moving slowly. Some 60 per cent are yet to make significant progress towards executing their digital transformation strategy, the Global Banking Benchmark Study found.

More than half of survey respondents agreed their organisation was not investing enough in digital innovation to keep pace with digital-first challengers. Almost three quarters said their organisation needed to do more to appeal to digital-native customers.

Legacy systems cannot be overhauled overnight but banks must quickly embrace cutting-edge digital tools to enhance customer experiences.

Customers in Australia have greater access to and control over their data thanks to the recent introduction of Consumer Data Right (CDR) rules. This makes it easier to compare and switch between products and services.

CDR first applied to credit and debit cards, deposit accounts and transaction accounts, and extended to mortgages and personal loans from November 2020. These traditionally “sticky” banking products are now far more exposed to competition from digital-first challengers.

In the face of growing competition, banks will be expected to offer better prices and more convenient services, and to differentiate their products by extending into areas beyond the boundaries of traditional banking.

NAB and CommBank have taken steps towards this future, rolling out smart receipts in partnership with Australian fintech Slyp, with the technology automatically storing itemised digital receipts in a customer’s banking app.

Without legacy systems to consider, banks could use best-in-class, digital banking architecture from the outset and build organisational cultures to match.

As a greenfield bank, Anglo Gulf Trade Bank (AGTB) became the world’s first fully digital trade finance bank in a matter of months.

It based its technology architecture around a single source of “truth” for client data, and designed agile, responsive systems that will allow future engineering to be released quickly to meet fast-evolving business and customer needs. In time, AGTB will offer a broad range of digital payments, multi-currency accounts, foreign exchange, and other transaction services to corporate clients and fintechs.

Legacy systems create barriers, but rapid change can be achieved.

Lloyds in the United Kingdom, for example, has started to migrate its core customer business over to a state-of-the-art, next-gen technology stack.

The bank had spent years gradually adopting new technology and had succeeded in eliminating departmental silos. These activities brought significant benefits and improved its focus on customer experience, but it realised it was moving too slowly and that some legacy bottlenecks could not be removed.

By starting afresh and implementing a data-centric, cloud-native modern technology stack, Lloyds increased its loan success. It improved its on-boarding processes for new customers, cutting the time it takes to open a savings account by one third.

Customers are becoming increasingly comfortable using technology and their expectations of banks are rising.

To thrive and grow, banks need to eliminate the aging technology that slows them down. They must embrace new technology to increase productivity and access data that is locked within legacy systems. In doing so, banks will be able to improve customer experiences, cut costs and more effectively compete with new market entrants.