A Necessary Evil with Bankable Benefits

Although not as glitzy as big data and IoT, application modernization is a high-priority initiative for organizations across all industry lines, according to the recent CIO Survey. It’s especially significant for financial institutions, for which 73 percent of the respondents see this seemingly tactical maneuver as a must-do over the next 12 months. Why? Because in this digital economy, every bank has to keep up with the “Joneses” within reasonable operating margins and despite regulatory pressure.

Applications are crucial, because so much of what banks do today is indeed digital and accomplished through remote channels. However, at the same time, those within the financial services sector are far less likely than those in other industries to indicate that application modernization has any positive impact on their business.

Some think the pain, disruption, costs and time associated with modernization effectively negate the positive benefits. But they would be well advised to consider the consequences of not acting. For many financial institutions, the cost burden they need to address is driven primarily by the technical debt associated with running legacy architectures, infrastructures and applications. However, the reality is that trying to deliver the desired customer experience in a digital world with applications designed in the pre-digital world just doesn’t work.

Pain aside, culture is also a contributing factor to the naysaying. Banks have historically owned and operated IT infrastructure on-premises, due to security and control concerns. That’s despite the existence of far better alternatives such as data centers built and operated by specialist firms that offer cost and operational efficiencies. Most legacy applications were built in-house and remain under the control of bank employees, whereas with application modernization, there’s a high degree of scope for outsourcing for both run and change aspects. After all, many applications can now run on an “as a service” basis, benefitting from flexible pricing and continuous development.

Fortunately, there are ways to alleviate the pain. For example, financial institutions—or any other organizations, for that matter—can build new applications and let the legacy infrastructure wither on the vine. Of course, this often requires embracing a series of applications, some proprietary, and others that meet bank needs while belonging to third parties. For instance, truly unique offerings may require a proprietary build, or at least customization, yet certain tasks such as customer account management are best served by leveraging proven market-ready applications. The key here is to apply rigorous standardization principles. This means that variations are limited to areas where regulatory demands or valued customer requirements necessitate change, not simply because “it has always been different.”

Rest assured, application modernization is worth the effort and the benefits are real. In addition to improving the customer experience, app modernization can yield significant cost reductions (up to 30 percent). When factoring in the future additional cost of maintaining continued compliance, this is substantial.

Simply put, banks need applications that are agile and flexible enough to thrive and grow in digital business—today and in the future. If a financial institution operates with creaky infrastructure and legacy applications, it will become as obsolete as any other analog operation.