#Digital transformation

Tackling banking legacy transformation challenges

Oct 14, 2021 - 7 min read
Also Available in : Français
Tom Lambrecht, Country Manager BeNeLux at Sopra Banking Software

The original version of this article appeared in IT Nation (in French).

The existing application landscape is one of the main factors slowing down banks’ digital transformations. Inherited from many years of modifications and an accumulation in various layers of successive developments or implemented software, it is often difficult and costly to maintain.

Making changes can prove to be delicate when taking into consideration interdependencies between functionalities. So how can banks move forward with their legacy to build the future, starting from a more agile environment?

The challenge of digital transformation for banks

All banks, regardless of their business domain or specificity, are faced with the challenge of transforming their legacy. They all have to work with a diverse application landscape, a complex construction, the result of various superpositions made over time. These components make up the core banking system, and, in most cases, they are akin to a monolithic block whose architecture is difficult to understand.

Tackling the problem of legacy systems

This complex application environment often hinders changes required by business departments or even customers. Many banks’ legacy systems and mainframes, for instance, are inherited from the 1970s and ‘80s. Not only do these systems struggle to meet the needs of an increasingly digital market, they’re also costly, with maintenance of legacy back-office systems sometimes accounting for 90 percent of technology budgets.

And given that banks’ core systems underpin all business operations, any possible modifications are considered extremely delicate.

However, industry stakeholders will have to tackle the matter, otherwise they will expose themselves to even bigger risks. For some banking players, it’s no longer possible to find the skills capable of maintaining systems, and therefore operations.

It is important to tackle the issue head on, and sooner rather than later. All the more so since transforming legacy can take time. It’s not, for instance, simply a matter of ripping out an old legacy and replacing it in one go, which would be an extremely expensive and disruptive process. Rather, banks need to take a pragmatic, step-by-step approach, upgrading one component at a time.

A flexible solution to meet business expectations

The transformation of environments must take into account business expectations as a priority. The first lies in making agility gains by avoiding getting locked into long-term projects. Then, it’s a matter of accelerating go-to-market for new products and services. And finally, it’s essential to guarantee compliance with applicable regulations. On top of this, there are specific IT challenges: reducing costs, and complexity by opting for standard solutions and a plug and play approach.

While we now opt for standard solutions as a priority, a core banking system must meet requirements that vary from customer to customer. There’s no universal solution that addresses all major banking stakeholders’ expectations.

At Sopra Banking Software, we address these requirements by offering a flexible core solution that facilitates the digital transition. We offer a catalogue of solutions that provide banks with a centralized vision of their customers and products, as well as customer profiling, such as retail, independent and SME.

Depending on requirements and starting with microservices-oriented technology, it’s now possible to roll out a wide range of useful components and guarantee overall consistency. Our solution for major banking players has a rich functional coverage, which helps these universal banks to maintain their extensive scope and gain agility with a lower total cost of ownership.

Two difference approaches for all needs

Small- and mid-sized banks face completely different challenges. However, all banks more often than not find themselves juxtaposed between transformation requirements, low rates and regulatory pressure driving down margins. To digitize their operations, banks – regardless of their size – must find solutions that enable them to easily adapt.

At Sopra Banking Software, we have two different approaches to support this: our Digital Banking Suite and Digital Banking Processing Platform.

The former is a software platform focused on customer engagement. It helps banks leverage APIs (with a view to open banking) to optimize their digital transformation, as well as using cloud technologies to improve the customer experience and facilitate access to the latest technologies.

The Digital Banking Processing Platform, on the other hand, is a managed solution (cloud or dedicated infra), which enables players to concentrate on their core business. It is a pre-configured bank, from front-to-back office, which vastly simplifies IT management.

Taking the next step in digital transformation

These new environments provide easy access to third-party solutions, TTPs or even fintechs, which are available on our Marketplace.

With this set of new platforms, Sopra Banking Software can help banking stakeholders rid themselves of their inherited legacy systems to build the bank of the future. Our aim is to work alongside banking players to guide them through a smooth migration and enable them to better address market expectations.

To learn more about Sopra Banking’s Digital banking solution, click here.