Upgrading your banking software isn’t optional to stay competitive anymore — it’s critical to survival. Many financial institutions don’t have the luxury of time to delay implementation. End-user demands change frequently and constantly. Ultimately, if a bank or credit union isn’t able to meet the user where they are digitally, they’ll move on with no shortage of competitors actively seeking them out.
Digital innovations continue to disrupt the banking ecosystem, leaving legacy banking systems decades behind. “Eighty-two percent of surveyed decision-makers believe that high-street banks are falling behind on adopting digital innovations,” according to research from Pepper.
The willingness to change financial providers, even for long-time users, is growing rapidly. “Customers are becoming used to the ‘bank’ as an app rather than a building,” reports Boston Consulting Group. Users are increasingly turning to digital and self-service banking. Here’s the net change (%) in digital and remote channels usage during COVID:
- Mobile app +34%
- Online banking +26%
- Contact center +10%
- Remote advisor +9%
And here’s the net change (%) in physical channels during COVID:
- ATM -5%
- Branches -12%
Additionally, 40% of millennials, 37% of Gen Xers and 28% of boomers “feel comfortable depositing money in a digital bank,” according to a REBEX Pulse survey — with 17,600 respondents surveyed across 30 countries.
Banks and credit unions have a stigma of being very slow to adopt changes, which is often due to the vast amounts of regulation in the financial sector. However, this hesitation by financial institutions has left an opening for fintechs like PayPal, Square and Sofi to garner sizable market share. For example, PayPal’s market capitalization was $129 billion on January 2, 2020 — pre-pandemic. As of October 27, 2021, PayPal’s market cap has rocketed to $276 billion, according to Ycharts. That’s bigger than all but two of the largest banks in the world: JPMorgan Chase and Bank of America, at the time of this writing.
Banks and credit unions that want to remain competitive should consider the following do’s and don’ts of effective banking software implementation:
Don’t Start From Scratch
McKinsey and Company analyzed more than 50 digital IT transformations and they identified key accelerators. For example, many banks and credit unions build new capabilities with no clear view on how they can better support their users, which can waste precious resources. Banks and credit unions that seek to maximize returns on IT spending should realize outdated legacy systems are hindering their ability to deploy new and in-demand self-service banking products.
Rebuilding another centralized banking system will not only delay inevitable obsolescence, it may be altogether more expensive than working with leading strategic partners. Building a flexible and reliable data platform over time, rather than starting from scratch, is much more manageable. Financial institutions “can move more quickly by retaining their existing data assets in their current location and focus instead on building better interface layers — for example, through streaming databases and a data mesh,” according to the McKinsey report. They estimate customized implementation can yield reductions in cost and in time of 10%.
Don’t Wait Too Long
Change can be daunting. Big change can be overwhelming. Such is the case with upgrading legacy banking systems. According to Finextra, the cost of maintaining legacy systems grows larger the longer they go without being upgraded or replaced. This is because the original system’s technology may no longer be supported.
Further, the specific skill sets, or people, required to maintain the system naturally flow to more relevant technologies. This translates into increased costs of maintaining old systems — at the same time stealing investment dollars for more modern systems. Hesitation has tangible costs. Legacy systems are generally based on outdated concepts which have commensurately longer development and release cycles.
Contrast that to modern digital banking system providers entirely built around the ability to deliver many, meaningful changes very quickly. Consequently, it becomes much more difficult to embrace newer, more user-sought-after technologies such as cutting-edge predictive analytics. The analytics, though incredibly useful to your financial institution, will likely be hard to integrate or may be flat-out incompatible with older legacy system architecture.
Do Partner With Implementation Industry Leaders
Working with knowledgeable and effective strategic partners is essential to your organization’s implementation success. Companies with a successful implementation track record, like Lumin Digital, can help your organization achieve an exceptional digital experience for your users while making your transition as easy as possible.
Lumin brings extensive experience to the implementation, service and support areas for your bank or credit union. Lumin’s client onboarding process employs new technologies designed to deliver a frictionless implementation that both you and your end users will appreciate. And, Lumin Digital’s modern architecture allows for rapid updates and upgrades with pinpoint precision, ensuring a more engaging user self-service banking experience and enhanced overall loyalty.
Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture capital firm specializing in world-changing and status-quo-defying technologies and people.
Pepper – Change in Banking
Gartner – 7 Options To Modernize Legacy Systems