What are the 3 best approaches for modernization in banking?
Banking modernization offers three distinct paths forward. Each approach carries different risks, costs, and timelines.
We've analyzed digital transformation and banking flywheels in previous articles, including how to harmonize customer and business value. Now we'll explore the deeper mechanics of modernization itself, examining how it differs from digital transformation.
Like McKinsey, we see three clear paths to modernization in banking:
- Big bang replacement
- Greenfield approach
- Progressive modernization
Each route enables front-to-back replacement to improve everything from customer experience to cybersecurity. Let's examine each approach.
1. Big bang replacement
Big bang replacement involves overhauling your entire tech infrastructure simultaneously. This approach replaces user interface, core systems, and integrations all at once.
Banks often consider this method first because it's bold and impressive to stakeholders.
Big bang replacement works best in two scenarios:
- Urgent replacement needs: Systems are failing and require immediate overhaul
- Abundant resources: Banks have significant time and budget available
But this approach demands careful cost-benefit analysis.
Big bang replacements create significant risks:
- Time consumption: Solutions may be outdated by launch
- Highest cost: Most expensive of all three approaches
- Resource intensity: Demands massive dedication from in-house teams
There's absolutely a time and place for this method. But most banks don't have the time, resources, or risk appetite to do it justice — leading to inevitable failure, sometimes after years of work. That makes a big bang a risky proposition.
2. The greenfield approach
Greenfield approach creates new systems while reusing existing infrastructure elements. This method prioritizes speed and fast value delivery.
Key advantages include:
- Quick deployment: Cloud-native tech stack built faster
- Cost savings: Reuses existing infrastructure components
- Zero disruption: Normal operations continue uninterrupted
It's a medium-risk, medium-cost endeavor that prioritizes speed of product innovation over potential data migration challenges.
But make no mistake, there are real risks.
As CCG Insights notes, the purpose of a greenfield approach is to test new tech and customer propositions. That means there's always the possibility that it will fail entirely. While some banks may consider it a solid gamble, others may not welcome betting it all on a single project.
This method works particularly well when major banks want to create new offerings or sub-brands. Like JPMorgan Chase and "Finn by Chase," these banks might not be as badly impacted by a bet gone wrong. But most banks simply don't have that luxury.
Some consultancies, such as Oliver Wyman, consider it the best choice for the average bank. But we can think of one that's more appealing and even lower risk.
3. Progressive modernization
Progressive modernization uses incremental change to re-architect customer journeys. This approach creates instant value through iterative improvements.
Core benefits:
- Risk mitigation: Gradual changes reduce implementation risks
- Dual value: Maximizes both customer and business outcomes
- Platform-dependent: Requires adoption of platform model first
Yes, it's progressive modernization — the middle-of-the-pack option that gives you medium speed and cost, but at significantly lower risk. Unlike other approaches, progressive modernization suits almost every bank.
Does that make it perfect for every bank? Of course not. Each transformation is a unique journey. But the pros vastly outweigh the cons, making it your best bet, pound for pound.
This is only possible after you've adopted a platform model, but with the right tech partner, this is much less daunting than you'd expect. By reimagining your operating model, you'll capitalize on underlying capabilities that become reusable and interoperable.
Imagine a digital factory composed of smaller, skilled teams. All working together on standardized architecture and automated infrastructure. That's how you super-charge innovation.
Deep-diving into progressive banking modernization
We know it, and you know it — modernization is hard. It's so hard that many banks spend years kicking the idea around before market circumstances force them to act. One of the biggest problems is getting started.
In the next blog, we'll further explore the progressive modernization approach so you can better understand the unique value of this method and start planning your bank's modernization journey.
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.
Frequently Asked Questions
Which banking modernization approach is fastest?
Greenfield approach delivers fastest results by reusing existing infrastructure elements while building cloud-native systems.
What's the most expensive modernization method?
Big bang replacement costs the most due to simultaneous overhaul of all systems and integrations.
Which approach carries lowest risk?
Progressive modernization offers lowest risk through incremental changes and iterative improvements.
