If it’s legacy, fix it now
When I last worked in a bank full time, a few decades ago, I remember hearing a saying that was quite commonplace in technology: “If it ain’t broke, don’t fix it.”
Every bank must at least be investigating the art of the possible with new technology for core banking
Basically, if something is working, then there’s no need to replace it. At the time, it felt like these were wise words. However, quite often, people that said this also used to say things like “Why pay for flexibility I may never use?”
In hindsight, these were not the words of a Yoda-like IT director, but more like those of Basil Fawlty in Fawlty Towers. Admittedly, this was at a time when compute was expensive and limited. Over 20 years of Moore’s Law has changed this.
If such notions were true, most of us would still be using record or cassette players for our music, we’d still be getting our VHS players out to watch a movie, and we’d still be using typewriters to write out letters. You would think that when your old device finally packed up and stopped working that eventually we’d move to the latest technology. But what would we do with our library of vinyl records and VHS tapes? What about the room full of typewriter spares we kept?
At home, there are very few of us that actually stick with old technology. Typically, we move on to the latest available technology as soon as we can afford to or as our requirements change and we need their new capability.
Yet when it comes to core banking software, why do we still see so many banks opting to buy incumbent vendors’ legacy software? In my previous article, I covered some of the reasons why I believe banks still do this. However, the more I speak to modern vendors who leverage current technology, the fewer reasons I can find to purchase what I would call a new legacy platform akin to buying a VHS player today.
This is because we now have “progressive renovation”, “core modernisation”, “hollowing out the core” – basically the ability to replace existing core banking systems gradually rather than carrying out a risky wholesale core replacement.
This approach is enabled by core banking solutions that are genuinely modular and flexible as they are designed from scratch (not taking old requirements and migrating to new technology) and implemented leveraging modern capabilities (microservices, for example).
What I like most about this approach is that it can be business focused to solve specific issues, for example to drive product innovation or simply to be able to create and launch product variations faster and cheaper.
In addition to this, software can be “smart” – that is, we don’t need to specify and then develop specific business logic. By leveraging AI, we can start to create more adaptable solutions that learn for themselves. There are some great solutions for fraud and AML already doing this.
Further still, such solutions are essentially ‘pay for what you use’ because you only deploy the software required to solve your specific need. In contrast, the vast majority of incumbent core banking solutions are actually monolithic solutions, or a suite of old software supplemented with acquisitions of other legacy software to bolster their functional breadth. Even though such solutions are “sold” as components, for ease of deployment and testing, they are deployed as monoliths – a single package/container.
Again, be careful, as simply having a containerised deployment does not make the solution “cloud native”. As I’ve written before, separating the marketing from the product reality can often be quite difficult.
I am not saying it is an easy choice for banks. As I highlighted in my last column piece, there are strong reasons/excuses for banks to keep buying or renewing licences of legacy solutions. However, “If it ain’t broke, don’t fix it” is no longer a valid reason.
As the rate of change in consumer behaviour and technology innovation increases, only the most agile and adaptable banks will survive. Now is the time to invest in technology that has the flexibility that you may not have requirements for today.
This week, I’m just saying that at minimum, every bank must at least be investigating the art of the possible with new technology for core banking. Modern technology not only changes the way a bank operates, but can ensure it continues to stay relevant in an ever-changing customer landscape. I would go further and say this is a company board’s fiduciary responsibility to safeguard the future of the business.
About the author
Dharmesh Mistry has been in banking for more than 30 years both in senior positions at Tier 1 banks and as a serial entrepreneur. He has been at the forefront of banking technology and innovation, from the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions. All opinions are his own – feel free to debate and comment below!
He founded proptech start-up AskHomey (sold to a private investor in spring 2023) and is an investor and mentor in proptech and fintech. He also co-hosts the Demystify Podcast.
Follow Dharmesh on Twitter @dharmeshmistry and LinkedIn.
Read all his “I’m just saying” musings here.
