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The Great Shift in Banking: Legacy to Cutting-Edge Systems

Change has always been closely associated with the challenges involved in making the transition. Replacing legacy systems with modern systems has always posed a huge challenge for banks, while the benefits of using modern systems are self-explanatory.

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Ashok Pandey
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By S. SUNDARARAJAN, Director, i-exceed Technology Solutions

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Change has always been closely associated with the challenges involved in making the transition. Replacing legacy systems with modern systems has always posed a huge challenge for banks, while the benefits of using modern systems are self-explanatory.

Today most businesses are using disruptive technologies such as SMAC (social, mobile, analytics, and cloud) to bring about an innovative and engaging edge in their activities and strategies. Banks are playing their part in being part of the social media lifestyle their customers are adopting.

The banking sector has often seen trends emerge that significantly changed the way banks functioned. However, no change has been as notable as the ones that are being fuelled by the digital revolution of recent times.

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The last two decades saw banks in India embracing technology to improve the efficiency of their services and processes. The arrival of Internet banking and subsequently mobile banking extended a bank’s services beyond its premises. These changes forever altered the way customers interacted with a bank and subsequently changed expectations of how they’d like to interact with banks in the future.

Eventually, banking activities transcended their traditional scope with the arrival of new models like crowd funding, peer-to-peer lending and mobile-only banking amongst others. The sector was also rapidly moving towards adopting a neo banking model that would forever change the way people bank.

The ‘Legacy’ Challenge

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Change has always been closely associated with the challenges involved in making the transition. Replacing legacy systems with modern systems has always posed a huge challenge for banks. While the benefits of using modern systems are self-explanatory, they often shy away from the transition because of the complexity involved in the migration. Core banking transformations often involve multi-year and multi-phase activities that are costly and effort intensive. Since banks are expected to provide their services 24x7, migration of core banking systems would also impact service to customers and internal stakeholders due to the temporary unavailability of systems. There has also been an increase in the number of regulations and compliance clauses that banks must take into consideration while integrating new systems with existing platforms.

However, putting off the transformation process isn’t really an option; at least, not for long. The economics of change would make it detrimental to any business. At the same time, the loss of customers to a competitor and the subsequent damage of reputation could prove far more expensive. What banks need to realize is that the transformation process would need a well thought out execution plan to minimise disruption of services while the migration takes place. They can consider some innovative approaches such as building a modern channel application layer without replacing the core systems. Once implemented, these applications would allow banks to have a 360 degree view of the relationships customer shares with the bank in real-time. This would help banks in personalizing the services they offer to customers and improve its overall brand image. Thus, adoption of modern banking systems is the way forward in being technically competent in an ever changing market.

Innovating with Technology

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Today most businesses are using disruptive technologies such as SMAC (social, mobile, analytics, and cloud) to bring about an innovative and engaging edge in their activities and strategies. Banks are playing their part in being part of the social media lifestyle their customers are adopting. Traditional banks are also preparing themselves for the heavy onslaught of non-banking financial institutions that are threatening their business.

New technologies that have fuelled the digital revolution have resulted in data being the new oil. Customer data, when meaningfully analysed, can reveal critical insights that in turn can be used to fine tune business strategies and service offerings. The big data revolution has also helped banks make sense of the gigabytes of data they’ve stored for decades. Globally, banks are leveraging the power of big data to derive more meaning from their customer interactions by studying trends in customer sentiments, product cross-selling, regulatory compliance adherence, reputational risk management, financial crime trends and much more.

Recent studies have shown that by 2020, there will be an astounding number of internet connections within the vast network of smartphones, appliances, manufacturing equipment, and wearables that are now widely referred to as the Internet of Things (IoT). The increased level of human-technology integration is producing massive amounts of data on people, devices, and processes. Logically, IoT goes a step beyond in harnessing big data and extracting insights through complex algorithms and intelligent analytics. Banks cannot overlook adopting the influence of IoT. IoT devices make data readily available and consumable by other systems and networks in real-time, thereby transforming information into a driving force that can be used to improve efficiency and increase productivity to enhance customer experiences.

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With devices such as smart wearables, IoT is opening a sea of opportunity to further revolutionize the banking experience. Banking services can be performed with the assistance of a wearable device. However, while banks must increasingly turn to the IoT to improve the customer experience and gain market share, improvements in overall network infrastructure, big data analytics, and cloud accessibility must first be in place before IoT-based technology can be implemented on a truly massive scale.

It is interesting to note that banks have generally been at the forefront of adopting innovation, however, it is also interesting to note that they at times shy away from innovation adoption. The reasons for this are many; employees must more often, go out of their way to make their innovation see light and while they are at it, they are most likely met with a lot of resistance than support. Incentivising innovation would fuel the drive to innovate. Another common reason is that different teams of a bank work in silos and hence adoption becomes a ‘from the ground up’ process. A horizontal level collaboration between different teams would make the transition more organic. There is no dearth of ideas in terms of innovation. What should change are the policies banks follow in the adoption of new technology efficiently.

In a nutshell…

The lack of customer pressure in the past had given banks little reason to change their working models. However, recent changes brought about by the digital revolution in resulting in an extensive overhaul of services; to simplify cumbersome systems and ensure that new technologies can be deployed effectively. Driving change in this area also becomes imperative for banks, considering the number of non-banking financial institutions that are taking advantage of technology to become a serious threat. Banks must accept that change is imminent if they must keep up with the changing times. Intelligent devices and communication technologies are paving the way for future businesses as well. Players that stay ahead of the technology adoption curve will be tomorrow’s market leaders.

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