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Why Modernize Legacy Banking Systems and How to Do It

Legacy systems, like the mainframe COBOL that powers about 43% of banking software, are deeply integrated into financial operations. These systems process most in-person and card transactions but limit financial organizations’ ability to adapt to new trends and meet customer expectations. To stay competitive, institutions must modernize these outdated systems. This helps improve operational efficiency and security and provides smooth digital experiences. 

Read on as we examine why modernizing legacy core banking systems is essential and explore the opportunities in this transformative process.

Challenges with Legacy Financial Systems

Understanding the challenges of legacy systems in banking is vital to highlighting the importance of updating them.

Talent Shortage in Legacy Skills

As technology evolves, fewer professionals are skilled in older systems. According to Deloitte, 79% of business leaders face challenges finding talent with legacy skills. This scarcity makes tasks like debugging, maintenance, and integration harder, leading to slower responses and more errors.

Data Integration and Reporting Limitations

Older systems often keep data in separate silos, making it tough to combine information from different sources. This fragmentation hampers thorough analysis and reporting, slowing down decision-making. Also, these systems might not work well with modern data tools, making it even harder to get useful insights. Consequently, financial institutions may miss out on chances to innovate and improve.

Security Vulnerabilities

Legacy core banking systems lack the robust security features needed to combat modern cyber threats. Outdated encryption, unpatched software, and weak access controls make these systems easy targets for hackers. Breaches can lead to big financial losses, which according to Security Intelligence, is typically 28% higher than the global average, about US$5.9 million per data breach. This highlights the urgent need to address security issues in older systems.

Expensive Maintenance

Keeping up with older financial systems can be very expensive. They often need specialized hardware and software that’s hard to find, driving up maintenance costs. Plus, their complicated structures mean fixing problems takes a lot of time and resources. Some estimates say banks and insurance companies spend 75% of their IT budget on maintaining outdated systems, leaving little room for innovation or dealing with new threats.

Scaling Issues

Legacy core banking systems often can’t handle growing transaction volumes or meet user demands. As people expect more from digital banking, these systems struggle to keep up. Without the ability to scale up efficiently, financial institutions risk losing customers to rivals with more flexible systems.

Transitioning to a Contemporary Banking System on the Cloud

So, how can we address these challenges without negatively impacting the business processes powered by legacy systems? Simple. By transitioning the core banking platform to a contemporary system powered by cloud technology. This process, known as cloud banking, entails updating core banking systems to align with cloud infrastructure.

Cloud banking systems provide banking services through secure servers accessed over the Internet. Instead of relying on physical servers and networks, which are expensive to set up and manage, platforms, workflows, and applications can operate seamlessly on cloud servers. Allied Market Research predicts a growth of 16.3% in the global cloud banking market by 2032.

Advantages of Embracing Cloud Banking Platforms

Here are some of the top reasons to opt for cloud banking platforms.

Significant Cost Savings. Modernizing a legacy banking system and migrating it to the cloud eliminates the need for costly on-premises infrastructure, saving banks a lot of money. Companies pay only for the resources they use, resulting in significant savings on hardware, software, and maintenance costs.

Better Customer Insights. Cloud platforms provide the resources needed to leverage big data and power analytics tools, enabling banks to better understand customer needs and market changes. This insight allows for personalized services and improved marketing strategies.

Competitive Advantage. Mainframe to cloud migration means improved agility for financial-sector companies, allowing them to innovate quickly and handle growing demands. It also facilitates seamless mobile banking experiences, attracting and retaining customers.

Improved Operational Efficiency and Performance. Cloud platforms streamline processes and enhance performance compared to traditional systems. Its centralized data storage and high-speed processing improve efficiency and security.

Better Business Continuity. Cloud-based systems ensure uninterrupted service, even during disasters or downtime. These platforms deliver robust disaster recovery solutions and high availability to minimize disruptions, safeguarding financial stability and reputation.

Modernize your systems and experience the advantages of cloud banking. Contact us to get started today!

Exploring the Opportunities of Cloud Banking Services for Financial Institutions

Cloud adoption opens up financial institutions to a wealth of opportunities. One example is leveraging artificial intelligence (AI) and machine learning (ML). These technologies empower banks to personalize customer experiences, automate tasks, and improve decision-making. McKinsey estimates that the business value creation from the full adoption of AI and ML in these institutions can reach up to US$340 billion annually.

AI and ML, powered by cloud technology, also empower banks to enhance fraud detection, a move that can potentially save banks around US$1.6 billion. That’s not all, though. Legacy system migration to cloud banking also unlocks the potential to harness big data for actionable insights, aiding informed decision-making, personalized services, and operational optimization.

Last but not least, cloud infrastructure’s resilience and scalability ensure smooth disaster recovery, crucial in averting financial losses, which can average US$9.3 million per hour of downtime for financial institutions.

Is Cloud the Only Way to Modernize Banking Legacy Systems?

Cloud technology is a compelling choice for updating outdated banking systems in the digital era, but it’s not the sole option. Other options include.

  1. Hybrid Solutions. This method entails blending cloud technology with on-premises systems. Its strategy allows institutions to enjoy the advantages of the cloud while maintaining mainframe systems for applications and workloads that cannot work in the cloud.
  1. Containerization and Microservices. Legacy core systems can be transformed into smaller, more manageable microservices through containerization tools like Docker and Kubernetes. This method facilitates easier maintenance, scalability, and flexibility.
  1. APIs and Open Banking. Embracing open banking concepts is another feasible option. This involves sharing data and functions securely with external developers and services through APIs (Application Programming Interfaces), fostering innovation and compatibility while gradually modernizing legacy systems.
  1. Legacy System Replacement. Organizations may sometimes replace core systems with contemporary banking solutions or tailor-made platforms. Although this approach can be intricate and costly, it provides a fresh start with up-to-date technology.

Updating your banking legacy systems involves considering many factors: budget, deadlines, rules to follow, current setup, and your institution’s goals. If you’re unsure where to start, Modlogix is here to assist. 

Advantages of Cloud Adoption in the Financial Sector

In addition to the benefits and opportunities we’ve already discussed, modernizing legacy core banking for cloud adoption has the following advantages: revolutionizing traditional banking practices.

Flexibility and Scalability

Cloud infrastructure offers financial institutions the ability to scale resources as needed. This ensures top-notch performance during hectic periods and cuts down on expenses during slower times, which proves vital in today’s ever-evolving market landscape.

Regulatory Compliance

The banking industry is heavily regulated. However, cloud service providers adhere to stringent security standards backed by compliance certifications. This significantly lightens the load for financial institutions when it comes to compliance. Thanks to cloud adoption, banks can confidently meet and demonstrate compliance with various industry regulations, including GDPR, PCI DSS, SOC 2, and more.

DevOps

Cloud adoption enables DevOps practices which fosters collaboration between development and operations teams. This results in quicker software delivery, automated processes, and increased agility while upholding reliability and security standards.

Technological Innovation

Cloud computing drives innovation within the financial industry. It gives access to top-notch tools and services, making testing and launching products easier and faster. By using cloud-native technologies such as serverless computing and microservices architecture, developers can create applications that grow and adapt easily. This ultimately improves customer satisfaction and keeps businesses ahead of the game.

Examples of Legacy Banking System Cloud Modernization

JPMorgan Chase, a major US bank, is a good example of successful legacy modernization in banking. Around 2016, it initiated a digital transformation, moving away from legacy platforms. By 2018, this shift had propelled the bank to the forefront of modern banking with tangible benefits.

Firstly, its digital customer base skyrocketed, reaching 48 million active users in just two years. This marked a milestone in meeting rising customer expectations and surpassed competitors like Bank of America.

JPMorgan Chase also experienced a strong growth in mobile users, jumping 12% YoY. This growth underscored the effectiveness of the bank’s mobile strategy and reflected customers’ satisfaction with its digital services.

This case underscores the benefits of modernizing legacy banking systems. If you’re considering leveraging cloud technology for your financial institution, contact ModLogix for expert guidance.

Modernizing Your Legacy Banking System with ModLogix

If you operate in the financial services sector, modernizing your legacy system is strategically imperative. The advantages include leveraging modern technology, enhancing service delivery, and gaining a competitive edge. However, to succeed, it’s important to partner with a reliable legacy system modernization provider, and that’s where ModLogix steps in.

With over 20 years of experience in legacy software modernization, a track record of hundreds of successful projects, and a world-class team comprising engineers, coders, testers, project managers, and more, we are best positioned to handle your transition from legacy to cloud banking. We adopt a custom approach to our services, ensuring all your requirements are fully met.

In a recent project, we migrated a client’s Webforms Platform to Microsoft Azure, addressing outdated technology, database compatibility, and unsupported components. Within just four months, we delivered a modernized solution that boosts report-building speed by 200 times and ensures 99.99% business continuity.

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