We have entered a new era in banking and financial services. The period of transformation has given way to an era of ‘flexibility’, driven by relentless technological progress, fierce competition and the demands of digitally savvy customers.
Traditional banks find themselves at a crossroads between the proven reliability of their existing systems and the need for flexibility. And with disruptive developments in fintech, the expansion of big tech into financial services and the increasing demand for embedded financial solutions reshaping the sector, there is no time to hesitate. Modernization is a necessity – not an option.
Older technology, which has traditionally been the backbone of banking operations, is becoming a burden. These legacy systems are ill-equipped to meet the demands of the digital age that require real-time transactions, data analytics and seamless integration with modern SaaS solutions.
The operational costs of clinging to these systems are 20-30% higher due to the maintenance required. This also results in a shift of resources and means a 50% slower time to market for new products and a higher risk of security issues compared to banks that have modernized their systems (McKinsey, 2023).
Finding people with the capabilities and expertise to maintain these systems is also becoming a challenge as the pool of legacy IT talent, such as COBOL programmers, shrinks. As these professionals retire, fewer people have the knowledge needed to operate and repair these outdated systems. As this expertise becomes terrifying, it also becomes expensive.
Faced with these challenges, banks are increasingly implementing a strategy of gradual modernization by updating an organization’s existing IT infrastructure incrementally, rather than through a complete overhaul. This allows institutions to build on the strengths of their existing core systems while integrating flexibility through modern platforms that work seamlessly with existing infrastructure.
Managing Director, Head of Business Development, EMEA, E6.
Benefits of modernization
The benefits include:
Accelerated time-to-market: By decoupling product development from existing systems, banks can launch new products faster and adapt to market changes and customer needs in real time.
Better customer experience: Experiences can be both personalized and seamless across channels, keeping customers happy, reducing churn and ultimately increasing customer loyalty.
Cost efficiency: Maintaining legacy systems generates significant costs that drain and divert IT budgets, discouraging banks from spending on innovation. However, investing in progressive modernization is more cost-effective and can be tailored to an organization’s size, scale and needs – while freeing up resources and budget for better use.
New revenue streams: The ability to quickly launch new products allows companies to tap into new markets and unlock additional revenue streams.
Enhanced security: Businesses don’t have to worry about cybersecurity and compliance as modern platforms manage risk by integrating robust features to protect sensitive data from advanced threats.
Progressive modernization enables banks to go beyond the limitations of existing technology while enabling continuous improvement and rapid iteration.
Without having to rely on outdated technology, banks can shift focus to innovation and testing and learning, accelerating their time to market.
If progressive modernization is the “what,” and agility and flexibility are the “why,” then agency is the “how.” Banks should avoid one-size-fits-all solutions and embrace a best-of-breed approach, choosing providers that excel in specific areas, such as card issuer processing.
Embedded Finance: the new frontier
The rise of embedded finance, where non-financial companies integrate financial services directly into their offerings, represents a major shift that banks cannot ignore.
By 2030, up to 15% of bank revenues and 25% of retail and SME lending revenues could come from embedded finance (McKinsey, 2024).
Solutions like Cards-as-a-Service, Wallets-as-a-Service and Ledger-as-a-Service enable businesses to seamlessly integrate payment and financial capabilities, tapping into a market primed for explosive growth .
UX: the differentiator in the digital age
So often, banking product teams start with customer-centric designs but end up building legacy-centric experiences. Rapid iteration made possible by constant experimentation – essential for modern DesignOps – is not possible. Without the configurability, functionality and modularity of modern cloud apps, banks will always be one step behind FinTechs.
In today’s hyper-competitive landscape, user experience (UX) is a real differentiator – and is becoming increasingly important for customer acquisition and retention.
Modern card issuer processing platforms enable banks to deliver exceptional and intuitive UX through features such as real-time transaction processing, personalized rewards and omnichannel integration.
The future of banking will be shaped by those willing to challenge the status quo, embrace cutting-edge technology and evolve towards a more flexible, agile and customer-centric future. Those who remain competitive will not be held back by outdated, legacy systems.
We reviewed the best mobile credit card processors.
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