Big banks have a big problem. The foundation upon which their technology is built is old, finicky and difficult to maintain. These legacy core systems are ludicrously expensive to replace and worse, nearly impossible to innovate with.
There’s a reason why technology companies like Google and Amazon are posing a real threat to the established financial industry. Without constraints the constraints of legacy technology, they are more nimble and able to respond to the dynamic demands of customers faster than banks.
It wasn’t always like this, however. Banks used to be bastions of technological innovation, developing and implementing new solutions that we now take for granted but were revolutionary at the time. To remain competitive in the current financial ecosystem, banks will need to find ways to return to the mindset which cemented there essential role in society, and that means finding ways to move beyond the legacy core systems holding them back.
Old Technology is Creating New Problems
In the ‘70s and ‘80s, banks were at the forefront of innovation. Foundational core technology was being developed that would allow for the first era of digital banking. ATMs, credit cards and debit technology were changing the way people banked and reshaping the financial industry.
This software was created using a ‘60s era code called COBOL, which was perfectly acceptable and functional at the time. Banks at the time tied their accounts tightly to these core systems which allowed them (at the time) the ability to manage their clients banking in a more flexible, technology driven way than ever before.
Fast forward 40 years and a lot has changed — just not for banking core systems. Most are still on COBOL, using the same software coded for the innovations that were groundbreaking nearly half a century ago. But as new languages developed, COBOL fell out of popularity in a big way.
Now, only a handful of COBOL coders remain, and their numbers are dwindling rapidly. Most of them in their 50s and 60s are retired or retiring soon. Banks can lure them back as obscenely well-paid consultants for now, but that is a band-aid solution to a worsening problem.
While core system technology has languished, customer expectations have evolved rapidly and are growing more dynamic (and demanding) every year. Driven by hot technology solutions and personalized experiences offered in nearly every sector, clients are looking for financial companies to match their expectations — something that is very difficult to accomplish on legacy core systems.
This has facilitated the rise of lean, digital challenger banks. Built using newer technology and without the constraints of older institutions, challenger banks are beginning to carve out a market share based on high interest rates and low fees facilitated by their low overhead costs. While their impact on the market is currently modest, it would be wise for banks to take heed. But what’s to be done when faced by the problems of working with legacy core system technology?
A FinTech Solution for Legacy Core System Problems
While banks have been using their (not insubstantial) IT budgets to keep the engine running for now, smaller technology companies have been working to solve the problems posed by legacy core systems. It’s far from an easy problem — these systems are delicate and prone to breaking, which is why banks are so averse to replacing them. Even a small system issue could affect thousands of customers and the ability to access their money, something banks seek to avoid at all costs.
So here’s the solution — don’t mess with the core systems at all. FinTech companies (like Zafin) typically offer technology that sits on top of the core system, letting it do it’s thing without tampering while at the same time greatly expanding a bank’s capacity to respond to changing market expectations.
Currently, something as changing a credit card fee might cost a bank tens of thousands of dollars and take hundreds of people-hours to implement. That’s not acceptable, especially in an environment where challenger banks are offering customizable and personalized rates and fees to attract new customers. With Zafin’s solution (for instance), banks are able to change rates and fees with a few clicks, without ever needing to go through the rigamarole of legacy core systems.
Want to start easing your legacy core system headaches? Get in touch with us today and find out what Zafin can do for your bank.
Zafin (@zafin) is a leading financial technology provider that enables banks to form richer, more personalized client relationships. Built from the ground up for financial services, its platform empowers banks to enhance revenue and operational efficiency. Founded in 2002, Zafin sits among North America’s top FinTech companies, and is trusted by retail and corporate units at some of the largest banks worldwide. Headquartered in Toronto with global offices, Zafin has a proven track record with a 100 percent client retention rate as validation.
Cam is the Product Marketing Strategist at Zafin. With a background in journalism and a passion for blogging, Cam strives to tell compelling digital stories. At Zafin he will share the latest trends and news in the FinTech world, and share Zafin’s role as leader in the industry. Follow him on Twitter @CamSmoth