Legacy banking tech is a dead-end. Here’s why progressive modernization is the way forward.

Banking operated in a vastly different landscape a few decades ago. However, times have changed. The traditional banking operating model, with its complex monolithic IT setups, is bound to crash.

To adapt, banks added various channels to their monolithic or black box systems, resulting in a tangled "spaghetti" junction. Digital capabilities such as online banking, mobile payments, e-statements, and digital documents were integrated into the existing structure, creating a web of challenges instead of a seamless platform. This channel-centric approach led to intricate system integrations, causing friction and frustration for customers who had to switch between different channels for basic transactions.

The damage to customer experience is undeniable. High customer servicing costs, slow response to inquiries, and prolonged time-to-market have become the trademarks of the traditional banking model. The dependency on point solutions only compounds the problem. It's a dead-end that leads to more technical debt, making adaptation increasingly difficult.

So, how do we steer away from this model and head toward success? The answer lies in progressive modernization. It's not about fixing old systems; it's about adopting a fresh and sustainable strategy. About shifting from being channel-centric to becoming customer-centric. From complex monolithic IT setups to a streamlined core. It’s about re-architecting banking around the customer.

Imagine ditching the complex "spaghetti" integration and the unsustainable "duct taping" of systems. Instead, envision a single platform, a “universal plug,” allowing incremental, step-by-step modernization, without any major disruptions to your daily business operations. This is the North Star guiding financial institutions toward a sustainable, customer-centric future.

To understand the modernization process in a nutshell, let’s take a look at the infographic below:

1. Current problem:

• Monolith or black box systems are old, complex, and costly.
  

• They don't adapt quickly to changes needed by banks and customers.
  

2. New approach:

• Stop trying to fix old systems — you’re only making things worse; try a fresh strategy.
  

• Decompose the functionality from the monolith legacy apps and re-architect them into modular microservices.
  

3. Layered solution:

• Remove unnecessary functions from the core banking system, and move them to the right layer.
  

• This makes the core simpler and lets banks build better, future-proof services on top.
  

Where to start? Start small. Identify specific pain points within various banking journeys and build up from there. Adopting an incremental strategy avoids the high-risk big-bang method. It provides a roadmap for journey-based upgrades, allowing you to modernize progressively and differentiate on your terms while keeping the engine running smoothly.

From onboarding to daily banking, lending, and investing, even incorporating features like Robo-advisory trading, each step is a deliberate move toward a more efficient and future-proof banking system. The infographic below shows a visual representation of this strategic shift.

The idea is to prioritize iterative enhancements, ensuring a steady evolution that not only minimizes risks but also maximizes adaptability. More than embracing change, it's about strategically implementing improvements that align with the ever-evolving needs of both customers and the financial landscape. As we navigate the modernization highway, we're not just swerving legacy tech dead-ends; we're actively paving the way for a banking system that's up-to-date and anticipates the needs of tomorrow.

There’s more to come on this, so keep an eye out for our upcoming webinar and white paper, delving deeper into our vision, and providing practical insights for a fluid modernization transition. In the meantime, if you're eager to learn more about implementing these strategies in your organization, download the guide Progressive modernization: a tech leader’s blueprint for future-proofing banks from Backbase. We’re dedicated to supporting you on every turn of this journey.