Digital Transformation: Is Your Team Ready for a Tech Upgrade?

The core banking software market is slated to grow from $14.14 billion in 2023 to a whopping 47.37 billion in 2030, according to Fortune Business Insights. With customer expectations rising for top-notch financial products and digital capabilities, compounded with the banking sector’s rapid innovation during and after the pandemic, financial institutions of all sizes are realizing that their core banking systems are due for an update.


Still, core modernization is a daunting task that impacts nearly all processes across the bank, affecting tellers to back-office staff, which leads many banks to delay a core conversion for as long as possible to avoid disruptions.


Major technology updates, such as core conversions requires thoughtful decision-making that considers the changing market, current business operations and the future goals of the bank.

According to Oliver Wyman, at any given time, approximately 5 percent of banks are looking to migrate to a different core system provider in the next two years.


If you’re wondering whether your bank should be one of the 5 percent, consider the following statements. If these are true, your institution may be ready to upgrade its core processing system.


Hiring IT staff has become challenging.


At more than 60-years-old, the COBOL is an outdated programming language that is responsible for running 43 percent of the world’s banking systems and 95 percent of America’s ATM transactions. Meanwhile, the average age of a COBOL programmer is 55 years old, which means many COBOL programmers are quickly approaching retirement. To make matters even more dire, less than one-third of today’s universities offer courses on the coding language and many stopped including it in their computer science curriculum in the late 1980s.


Time is ticking for those that still heavily rely on COBOL. The financial services industry is already facing significant staffing challenges and an overreliance on outdated, legacy systems could exacerbate those challenges.


According to KornFerry’s recent Global Talent Crunch report, the financial and business services are industries that will have the largest shortfall of workers by 2030. There will be a shortage of 10.7 million workers in the financial and business services sector, a number that is more than 45 times the size of its global workforce.


As the previous generation of programmers with COBOL expertise retires and competition for fresh IT talent intensifies, it is crucial that financial institutions find ways to cultivate the best employment opportunities possible to attract the next generation of workers.


This doesn’t just mean re-thinking traditional talent sourcing or recruiting strategies. Consider whether your bank’s core processing and other IT systems appeal to prospective employees and give them chance to apply and build their technical skills in a way that is meaningful and relevant for their career development.


Integrations are burdensome, leading to challenges with keeping up with latest customer demands.


The dated programming language being used in legacy core systems combined with the tendency for many banks to support new applications and layer added functionalities on top of their existing core, increases the risk of an outage that could disrupt operations for core banking services.


Unplanned downtime is expensive – in fact, the Uptime Institute’s 2022 Analysis Report found that more than 60 percent of digital infrastructure outages cost over $100,000, an increase from 39 percent from 2019.


Meanwhile, a growing number of community financial institutions are realizing their core banking systems cannot support the demands of new digital solutions and features, such as apps or services built around real-time transaction processing, for example. Today, many legacy core banking platforms operate on batch processes, which involve manual processing requirements and often cause bottlenecks during peak transaction hours. As a result, this can disrupt the customer experience with periods of downtime.


These issues will become increasingly problematic for financial institutions operating on legacy systems, especially as new developments like the Federal Reserve’s real-time payments network, FedNow launches later this year to support instant payments 24/7, every day of the year. Innovations like FedNow have the potential to reveal new product opportunities and revenue streams for banks, but without a modern core system, those opportunities will be limited. 


Your bank is facing scalability issues with its current core.


Banks should consider their business goals and whether their current core banking platform can support its needs – both now and in the future. Is your bank looking to expand its retail footprint, launch new products or improve the customer experience? An upgrade from an outdated legacy system may be necessary to achieve these goals. The infrastructure of your bank’s core banking platform must be scalable, and it should help grow your bank’s business, not limit it.


To remain competitive, consider the flexibility and scalability of your bank’s core.


A flexible platform allows banks to easily innovate and develop new products and services that meet evolving customer needs, across different channels. This should not require burdening technical teams with time-consuming, expensive, difficult-to-manage customizations for new product offerings. Instead, modern core banking systems should help bank teams function in a more “self-service” fashion, giving team members the ability to configure and launch products, rather than wait for their core and digital banking vendors to do it.


A Foundation for Future Innovation

Now is the time for banks to re-evaluate their core systems and decide whether these platforms are still functional enough to support their current operations and build a foundation for future innovation that gives their institution a competitive edge.

Outdated core banking systems hold banks back in several ways – from high maintenance costs, to limited flexibility and functionality to launch new solutions that address the demands of today’s customers. Whether your goal is to automate certain back-office tasks or to enhance the front-end mobile and online banking services, a new core integration may hold the key to success.

By honestly assessing the challenges and pain points that their financial institution faces on a regular basis, bank leaders can confidently determine whether their team is ready for a tech upgrade and proactively strategize their future IT investments. 

About Author:
Murthy Veeraghanta, Chairman & CEO of VSoft

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