Are Legacy Systems Holding Big Banks Back?

Big banks and their core legacy systems struggle to compete with new tech.

Legacy Systen Blog Blog

The complexity of big bank legacy systems is similar to an archeological dig. Brush away the surface layers of advanced analytics and responsive web design to reach the ancient core banking systems buried beneath.

Big banks have an established customer base but are struggling to stay competitive with outdated, behind-the-scenes tech when compared to their born-digital rivals. Banks need to leave their archaic infrastructure behind and embrace digital transformation by modernizing their legacy systems through the adoption of cloud-based services and AI technologies.

Modernizing isn’t a simple process and it’s fear and legacy that keep executives from making the move. Dave McKay, CEO of the Royal Bank of Canada, made a public statement regarding the threat of legacy systems to the digital transformation of big banks: “Regulation is not the problem. The biggest barrier to adapting is the incredible legacy systems.”

What’s Holding Banks Back

Financial technology is constantly changing and improving.

Instead of taking on the arduous task of transferring data to a cloud-based system, banks continue to rely on their outdated, monolithic systems as the core of their institutions. This has created “technical debt” and it’s been building for decades, leading to high maintenance costs and a disruption in adaptation, agility and productivity.

Why do big banks hold onto outdated legacy systems? It’s complicated.

Legacy Systems are Complex

Legacy systems are one-of-a-kind. The banking industry has its own infrastructure and mainframe-based system that handle customer data, payments, account management, loans and savings deposits and back-office tasks.

This framework was at the head of the game during the 70s and 80s when large banks were the leaders in technological innovation. Many of the systems are written in COBOL, a programming language from the 1960s, and the programmers trained to oversee these dinosaurs are approaching retirement. Over the years, banks began to move away from COBOL and layer their applications with Java and Javascript, further complicating the system and making modernization increasingly difficult.

They’ve become a barrier for traditional, big banks to break into the fast-paced digital world. Attempts to modernize core legacy systems have proven to be difficult due to the complexity of the outdated system or its outright incompatibility with new technology.

Fear of System Outages

Systems cannot be switched off and rebooted to do updates. Without a clear vision and road map towards modernization, things can quickly go terribly wrong.

Due to its complexity and intricate architecture, what if something is overlooked during the transition? With everything depending on core legacy systems, a system outage during a data transition could have disastrous effects. These are concerns holding back executives from taking the leap.

In 2012, the Royal Bank of Scotland experienced a system crash after an upgrade went terribly wrong, costing the bank $234 million in compensation for customers and staff, not to mention the hit to their reputation. The thought of this may persuade bank executives to rethink updating legacy systems but analysts and banking industry experts concluded that outdated and complex infrastructures were at fault. Chief executive Ross McEwan stated that the bank had disregarded its technology for decades.

Legacy Systems Have a Bad Reputation

Companies hold onto legacy systems due to convenience and its complex integration at the core, but nobody really likes these systems. How do you know it’s time for core modernization?

Too Slow

Performance and efficiency gradually decline in aging systems. Not only that, but these systems weren’t built to handle the demands of today.

A 2015 study by Microsoft concluded that consumers, who are used to quick, on-demand service and technology, have an attention span of only eight seconds. With improvements in financial service tech coming out every year, consumers have grown accustomed to instant access. Why would consumers want to stick with slow, outdated financial tech?

No Support

When the vendor no longer offers support for an old system, service updates and technical support ends and you’re at risk of system failure and data loss. You’re stuck with an aging system that no longer receives updates when you choose to not transfer business operations.

Banks are cautious about seeking new vendors and technology due to decades of investment in their legacy systems.


Your software needs to be compatible with other applications to efficiently run everyday business processes. This means that bank legacy systems cannot be effectively integrated with modern technology. It’s just too old.

Big banks have their name and reputation but financial service startups have an edge—technology that’s capable of changing and adapting with the times.

Special Training and Skills

Banks need huge IT departments with special training to run their mainframe systems but IT students aren’t going to school to learn how to manage and operate banking legacy systems.

An estimated $3 trillion in daily commerce in the financial industry goes through old COBL systems. The number of people trained to operate these platforms is dwindling and if anything were to go wrong, they’re the only ones trained and equipped to fix the problem.

Finding, funding and training staff for an outdated infrastructure won’t be an option in the near future.

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Legacy Systems Are Vulnerable

Big banks aren’t the only ones lagging behind. It’s been years since support stopped but Windows XP is used on many systems all over the world. Only in recent years has the U.S. Department of Defense started to update their operating systems. Data security is the main reasoning.

Business DNA’s (BDNA) quarterly State of the Enterprise Report stated, “old IT assets are a major and often overlooked source of enterprise cyber-security vulnerabilities. Without processes in place to identify and remediate these “end-of-life” (EOL) assets, organizations expose themselves to cyber-criminals eager to exploit these unprotected flaws.” This report also added that up to 50 percent of hardware and software installed in the average large enterprise were past end-of-life dates.

Security breaches damage even the best reputations and this is a hit big banks cannot afford to take.

High Costs

How do you offer the best services at the lowest cost? By addressing the problems with legacy systems and embracing digital technology.

They’re expensive to run and modification is complex. The operating cost of running a legacy system doesn’t leave much in the budget for investments in new technology. Experts at PwC stated in their FS Technology 2020 and Beyond report that financial institutions are spending twice as much as needed on IT.

Newer hardware runs more cheaply and efficiently than their predecessors and paying the salaries of the IT department alone costs a small fortune.

Why Banks Need to Embrace Digital Transformation

There’s fear in leaving behind the old but also fear in failing.

You can’t avoid digital transformation if you want to grow and remain a rival in today’s market. With the right strategy and execution, new technologies can lead core banking software into the 21st century.

The end goals are greater than the risk and digital transformation strategies bring value to both banks and customers.

Here are some added benefits of core banking system modernization:

Consumer Experience

Updating legacy systems means a better experience for all.

Consumers don’t interact directly with core banking systems but they are intertwined with front-end user interfaces. Modernizing systems to the core means better services and features and increased automation.

Capital One is one example of a company that used analytics to understand consumer spending patterns and in turn, created an improved consumer financial services company.

Increased Revenue

Without the time and resources spent on old technology, cloud-based systems and APIs open the door to new products and services.

Hosting data on cloud platforms and using APIs to link systems to the outside world invites developer collaboration and the potential for improved customer services and alternate streams of revenue.

Business Agility

This is the ability to compete in the digital marketplace through quick response to market changes and opportunities.

Being agile means working together from the top down to provide quality products and services faster than the competition. Legacy systems hold banks back by not having room for flexibility and innovation. Because of this, banks are limited.

Roundup: Out With the Old

Adapting to the digital world is no longer an option in business.

Upgrading legacy systems through digital transformation is about staying competitive and relevant to meet the demands of today’s consumers. It’s not only about switching out the old tech for the new but business strategies, processes, and culture must change alongside it.

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