Banks face a significant threat by not modernizing their legacy systems: the necessity of system updates.
In the rapidly evolving world of technology, banks are facing a significant challenge: the inability of their Gen-based applications to integrate seamlessly with modern technologies like cloud, APIs, and data analytics. This issue is causing a technology gap that is widening every day.
Developed in the 1980s, Gen is considered legacy technology. While it played a crucial role in helping the banking sector modernise in the 90s and early 2000s, Gen modernisation is now essential for banks to remain competitive in the ever-changing financial market.
The first step in Gen modernisation is rehosting, which involves deploying an application to another infrastructure without modifying its code. However, this approach poses challenges like suitability across environments and differing security standards. A full scale rebuild, where the entire app is regenerated into modern code for deployment on any infrastructure, is often seen as the last resort due to the complexity and risk involved.
A revise strategy, on the other hand, involves optimising application code to remove technical debt left by Gen, with each organisation's individual needs and goals considered. This approach allows for a more tailored solution, ensuring that the modernised application meets the bank's current needs and increases flexibility, reducing costs.
Specialist Gen skills are in scarce supply, leading to longer update times and higher maintenance costs for Gen-based apps. To address this challenge, banks could instead refactor applications, configuring automation and utilising deep Gen specialism to streamline the modernisation process.
In today's increasingly regulated environment, relying on legacy technology like Gen can make compliance significantly more difficult, especially with regulations like the EU's DORA emphasising IT resilience. A strong governance and compliance integration strategy can help banks navigate these regulatory challenges, embedding regulatory checkpoints into every phase to avoid data breaches and penalties.
Strategies to enable modernisation include incremental modernisation with APIs, cloud adoption with hybrid models, robust change management, selecting domain-expert vendors, comprehensive testing and fallback planning, and focusing on customer-centric innovation.
Mark Hankin, the Application Modernisation Partner at TXP, emphasises the importance of these strategies: "By adopting modern technologies and approaches, banks can transition their Gen-based core systems towards modern ecosystems with cloud, APIs, and data analytics capabilities, balancing legacy risks with digital agility and compliance."
The success stories of challenger, cloud-first banks like Monzo, Starling, and Revolut, who have innovated more rapidly due to their adoption of modern technology, serve as a testament to the benefits of Gen modernisation. Banks that embrace this change will not only remain competitive but also thrive in the ever-evolving financial market.
To bridge the technology gap and ensure competitive advantage in the rapidly changing financial market, banks need to modernize their Gen-based applications. This modernization can be achieved through a revise strategy, which involves optimizing application code to remove technical debt, considering each organization's unique needs, and increasing flexibility while reducing costs. Furthermore, a strong governance and compliance integration strategy is essential in today's increasingly regulated environment, especially with regulations like the EU's DORA, to navigate regulatory challenges and embed regulatory checkpoints into every phase, thereby avoiding data breaches and penalties. Data analytics, compliance, finance, business, and technology will play crucial roles in this transformation, as banks transition their Gen-based core systems towards modern ecosystems with cloud, APIs, and data analytics capabilities.
