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The United Kingdom has already seen the emergence of mobile-first institutions that have won regulatory approval for a banking charter. It is only a matter of time before they invade the U.S. market.
December 15 -
Its massive core banking system overhaul complete, BBVA Compass can now focus on creating an AirBnB-like experience for customers, says CEO Manolo Sanchez.
October 16 -
Ramamurthi has transformed a 123-year-old institution with one branch serving a dusty Kansas town into a seedbed for disruptive financial technology not to mention a wildly profitable generator of fee income.
December 17 -
Community Trust in Ruston, La., took the rare step of replacing its hodgepodge legacy core system. The move should cut processing costs in half. In the meantime, the bank's taking a lot of calls from confused customers.
August 10 -
Legacy core systems make banks vulnerable to new competitors and risks. Modernization is underway, but many institutions are not moving fast enough. The risk of waiting too long is that it will take too long to catch up.
November 11
Banks by and large recognize the need to adapt their legacy systems to the demands of today's digital technology. But the problem they encounter is that making enhancements to a core system with ingrained inefficiency is like the expression popularized in modern times by the 2008 U.S. presidential
Most banks are bound to
Several U.S. bankers have told me in private that making a single change to a product can take more than 400 consecutive days to complete, with some taking well over 500 days, because products are hard-coded inside the core system and various silos.
That's just one example — there are plenty of other reasons — of why it's time for banks to pull the trigger on modernizing the ancient core system.
When the very system that administers the entire bank is old, creaking and breaking can occur. That was the case in recent system failures at
To support digital channels, banks have built layers upon layers onto their legacy cores. But that data still remains bound by business line silos. The result? There is no clear view of customer need, no enhanced customer experience and no new way to win customer hearts and wallet share.
The need for traditional banks to change their foundational technology is only increasing as guerrilla-style market wars between incumbent institutions and disruptors are quickly becoming the norm. In the U.K., for instance, new
To date, U.S. banks have had a regulatory moat protecting their territory. But American
To be sure, the
If the challenger bank model is a blueprint, with API adoption as the battle plan strategy, American banks can augment their current core systems with a middle-layer blueprint where silos are breached, functionality is flexible and APIs can be easily integrated.
Banks must face the fact that their disruptor competitors are not slowed down by the question of what to do with an old core system. Already, challenger banks — mobile-based platforms emerging in the U.K. that have sought banking licenses — are operating with new core systems from scratch that provide functionality out of the box.
By redefining what a bank core system can and should be, banks can harness modern technology in the battle for wallet share and customer loyalty, and shed the mantle of antiquated systems. It's time to revamp the arsenal, not put lipstick on a pig.
After all, a legacy is something one leaves behind.
Ghela Boskovich is the director of global business development for Zafin. She can be reached on Twitter at
