In 1994, Bill Gates stated that “banking is essential, banks are not”. While that may have been difficult for us to imagine in 1994, as technology advances, we can see that the financial industry is transforming but not without technology-based challenges.
The traditional banking model was extremely ‘people’ centric. Customers would visit ‘bricks and mortar’ branches to do their banking, data was stored locally, and the concept of ‘data privacy and protection’ wasn’t that much of an issue because our world was not yet digitally connected.
Banking in the 21st century, however, is different because we now live in a digital world. Banking has become much easier for the customer with instant access to their funds at any time and from anywhere. Transfers can instantly be made online, and we have an up to date overview of our transaction history and current bank balance whenever we need it.
Ultimately, the financial industry has done a great job keeping up to speed with modern technologies to add to the customer experience and fastrack digital transformation, but this is not enough. There is more to finance than just a supercharged customer experience.
With the shift to the virtual space, our transactions, account information, banking history and more are out there in the digital universe, and this data needs to be protected at all costs.
Financial institutions are now met with strict compliance regulations regarding data security and integrity, and failure to comply could result in significant issues for the future of any financial institution. Like always, though, you can only act when you know where the problem lies, and for financial services, the problems are usually the result of legacy technology.
Simply put, legacy technology is the outdated infrastructure, systems, or applications that a company still uses. As financial institutions grow and transform, they often end up with a mish mash of systems, platforms, and software – many of which consist of legacy infrastructure. While many businesses may have legacy technologies still in use, the finance industry needs to be more aware of the problems they could face when continuing to use legacy infrastructure.
Data is big business these days, so the laws surrounding data are stringent for all companies, and this is no different for those in the finance industry. Financial institutions are required to keep data for extended periods of time. So long, in fact, that their original data storage systems have completed their lifecycle and are no longer supported or serviced by the manufacturer – a legacy system.
There are 3 primary reasons that stop organisations from system modernisation: the cost incurred with updating, possible operational disruptions, and possible data damage caused during the migration.
While these are all valid reasons, continuing down a path with legacy infrastructure could end up causing your financial institution more harm than good, and here’s why.
As mentioned, data has quickly become one of the most valuable commodities on earth, so a lot of companies now leverage the power of data for their own benefit. But in those institutions with legacy technologies, data is being stored in siloed, disparate systems that can’t communicate with each other, therefore, human intervention is needed to find and access data.
When humans enter the mix, errors skyrocket.
In 2020, human error accounted for 38% of organisation data breaches across Australia. Although the human factor is not completely removable, system modernisation would allow for more secured data and data transfer as processes become automated, therefore, limiting the need for human intervention.
The security risks with legacy technology don’t stop there, either. When manufacturers stop supporting legacy systems, this means that security vulnerabilities also increase. Software manufacturers consistently release software updates for supported products and services to patch system vulnerabilities. Without these regular updates, your systems, organisation, and critical data can become a playground for malicious actors.
Organisations experience a 15% budget increase every year to maintain legacy systems, and banks and insurance companies can spend 75 – 80% of their entire IT budget on preserving them, making them an unnecessary money pit. While many institutions cite saving money as the biggest reason to continue with legacy infrastructure, maintenance and preservation costs far surpass the cost of system modernisation.
With a legacy system, your organisation needs to ensure that your maintenance budget includes ongoing management resources. As systems become outdated, they have the ability to create major failures across your institution, so they need to be constantly monitored.The older a system becomes, the more difficult and expensive it can be to find professionals who have the knowledge to guarantee this is done effectively.
You will also need highly skilled IT support to ensure your legacy technology is correctly integrated with the more modern parts of your IT environment. You may also need to fork out for special licensing rights, which, depending on the size of your organisation or financial institution, can run into the millions.
The Hidden Costs
Legacy technology maintenance also comes with hidden costs, and these are not financial. The hidden costs of legacy maintenance have the power to impact your business operations by slowing things down or even stopping them entirely.
Legacy technology can unnecessarily tie up your IT department, making them unable to focus on other areas of your infrastructure or business. Your organisation’s critical data becomes less secure without continued manufacturer support and updates, and you will experience frequent downtime, which will ultimately affect your bottom line.
All of these impacted areas will then trickle down to your customers and negatively impact their experience, which can then hurt your institution’s reputation.
While legacy technology in the finance industry comes with its problems, there are people who can help your institution either maintain, integrate, or migrate your IT infrastructure at an affordable cost. Managed service providers offer a team of highly skilled professionals that have the services and solutions you need to keep your critical data secure,your business up and running, and your customers satisfied.
Don’t let your legacy technology take down your business. Call the experts at Lindentech today to see how their experience in the finance industry can benefit your financial institution.