Dive Brief:
- Retail banks are leaning on core modernization to unlock customer experience enhancements, according to a recent Endava report. The software and IT consulting firm surveyed nearly 500 leaders at financial institutions in Europe and the U.S.
- Cloud is pervasive in banking — more than half of respondents have already commenced migration. Yet, three-quarters of the banks surveyed believe they need to modernize their cores and phase out legacy systems to implement industry-standard payments and customer service enhancements.
- The industry remains beset with technical debt, some of which has been lifted and shifted to cloud, according to the report. “A lot of financial institutions are built on this stack of different products and services, so it's very rare to find two that are the exact same,” Scott Harkey, Endava EVP of financial services and payments, told CIO Dive. “In fact, I’ve never seen it in my 20 years in banking.”
Dive Insight:
Hybrid IT estates that split workloads between cloud and on-prem systems are the norm in retail banking.
Wholesale core replacements can be costly and disruptive, hitting critical business functions and banking services. For many banks, it’s simply not an option.
“You’d be hard pressed to find core systems that don’t ultimately impact the customer in banking and financial services,” Harkey said. “Even the most basic building block of a bank — the core deposit system or ledger — has huge impacts on what customers experience.”
To minimize disruptions, most banks settled on an incremental migration and modernization approach, implementing small functional upgrades over time on a path toward broader transformation.
Nearly half of respondents fit the incrementalist profile. Another 40% had a more progressive strategy that used digital wrappers, containerized applications and APIs to update their core.
Both approaches leave lingering legacy code and can tax IT’s ability to source necessary programming skills. But the industry is learning as cloud acumen accumulates and the technologies become easier to integrate.
“It used to be hard to have a hybrid environment,” Harkey said. “But, as organizations have matured, they’ve learned there are advantages to having a dedicated physical infrastructure on-prem for more static workloads that don’t see a lot of fluctuations and using cloud to drive efficiencies.”
Efficiency gains, digital user experience enhancements and customer retention are currently the top three priorities for retail banks. Executives are willing to increase tech spend to achieve those goals, according to the survey.
Large financial institutions have publicized their appetite for IT investments. Citi poured $12 billion into tech last year, the bank reported in January. Bank of America plans to spend $3.8 billion on new technologies this year, CEO Brian Moynihan said in October.
Among the main barriers to digital transformation, roughly one-quarter of Endava’s survey respondents cited cost. Just 12% of respondents said they lacked C-suite support for tech initiatives. Competing technology priorities were, instead, the largest hurdle banks face in their efforts to modernize the core.
