Introduction
If you've been following along with this series, you're now aware that there are three main approaches for your bank's progressive modernization journey: journey-based, segment-based, and headless. Now that we've explored the first approach, it's time to take a look at the segment-based method, another viable strategy your bank should consider.
What is the segment-based approach to progressive banking modernization?
The segment-based approach to progressive banking modernization starts at the business-segment level — typically onboarding or servicing — and replaces outdated systems one segment at a time. Banks expect to run this cycle roughly every 10 to 15 years as their tech reaches end-of-life. Most wait even longer, which is why nearly half of respondents in a recent poll named legacy software as the single biggest barrier to digital transformation.
In these situations, banks are laboring with tech that's at the end of its lifecycle, resulting in a near standstill of innovation, as well as sky-high maintenance costs. Once these banks reach an inevitable breaking point of technical debt, they decide that enough is enough — and who can blame them?
Did you know
surveyed CIOs estimated that tech debt amounts to 20-40% of the value of their entire technology estate before depreciation, according to McKinsey, meaning it's long past time for a change.
So, when banks are ready to change, the segment-based approach is a great way for them to begin working to modernize and replace their retail servicing segment, for example, and then move on to other relevant areas as needed.
Why should I select a segment-based approach?
This approach works best when you like what you have, but want to modernize it. You replace your tech with a more current version — same core functionality, potentially with some added capabilities if you're chasing feature parity. That makes it a natural fit for banks with limited budgets and lower risk appetites, not for those looking for a fundamental reinvention.
Despite strong demand for this approach, a word of caution. Since it doesn't involve fundamental restructuring — say, adopting a unified platform model — a segment-based play has a high likelihood of creating or exacerbating operational silos. If you're looking for a reinvention of the way you operate and deliver value, this isn't it.
- Operational silos: Modernizing segment by segment without a unifying platform layer embeds fragmentation into your architecture from the start.
- Limited strategic upside: You get updated technology, but the same operating model — which means the same constraints.
- Short modernization cycles: Without restructuring, you risk repeating the same replacement cycle every decade rather than building something that scales.
If you do chase feature parity — we don't recommend it — do it in a data-driven, customer-centric way. Identify which capabilities your users actually rely on day-to-day, and cut scope ruthlessly in favor of what drives real value. Sometimes the right call is dropping the flashy feature entirely.
FAQ: How do I avoid over-building during a segment-based modernization?
Start with usage data, not a feature wishlist. The capabilities your customers ignore today won't become valuable just because they're rebuilt on modern infrastructure.
The headless approach to progressive banking modernization
In the next blog, we'll move on to the third and final option: the headless method, a more tech-centric, platform-based approach that will help you rewire your bank's core channels so you can reduce complexity and logic duplication across your tech stack — an increasingly important consideration in modern banking.
For more information, check out our Banking Reinvented podcast, where Backbase Founder/CEO Jouk Pleiter dissects similar topics alongside Tim Rutten, EVP/Chief of Staff, and other digital leaders. Stay tuned as they chat about everything from progressive modernization to decomposing your bank's complexity.
