The big firms of the digital world are accomplishing excellent outcomes on flexible architectures, but banks are falling behind with regard to their legacy systems.
Legacy systems are one of the biggest obstacles preventing banks from replicating the digital experiences provided by firms such as Apple, Google, and Amazon. The competition among these companies is steering the digital world in a direction of real-time.
When it comes to executing digital transformation, traditional banks must answer several questions:
- What are the crucial business preferences?
- What are the correct technologies to use?
- Will they be in a position to execute changes at the necessary speed?
- Will the IT personnel be able to handle an increasing workload?
The risks are high and mistakes could be expensive.
According to a report from McKinsey & Company in 2015, “investment in fintechs by venture capitalist firms rose to $12.2 billion in 2014 from $4 billion in 2013. There are more than 12,000 fintech companies moving into every banking activity and market, and up to 60% of traditional bank profits and revenues could go to these fintech companies in the next 10 years.”
Established firms, unlike digital startups, have to deal with a significant number of legacy systems and processes that prevent them from innovating.
Even if a bank manages to reduce the number of internal legacy systems and processes substantially, the remaining legacy systems would still keep most of the staff busy overseeing maintenance and resolving crises instead of engaging in digital transformation activities.
Increasing the problem, the bank’s transformation has also been impacted by a culture clash between established personnel and those willing to facilitate change.
Hence, traditional banks are not able to match the agility of a fintech start-up. However, it does not mean that everything is lost.
A bank can split its IT personnel into two separate groups. One group would be responsible for maintaining legacy systems with a task to decrease the number of systems and processes.
The second group would have to speed up digital transformation. This group must function autonomously and should be assessed based on its capability to introduce convenient products and solutions to the market. The organizational leadership must provide strong support to the second group for it to succeed.
This two-pronged strategy enables traditional banks to continue leveraging their actual strengths and achieve the agility and innovative offerings that the present financial consumer demands.