Ecosystem Enabled Banking Part 3: Old vs New, the legacy dilemma!
P?l Krogdahl
Executive Banking Consultant & Director of Advisory Services @ Samlink | Co-host @ Fintech Daydreaming Podcast | Keynote Speaker and Author (All views expressed are my own and do not represent those of my employer)
Earlier this year, I published a paper on what I now call "Ecosystem Enabled Banking", which is my view and approach for undertaking a successful progressive modernization with a focus on implementing capabilities from an ecosystem of ISV and Fintech partners to accelerate time to market, drive future flexibility and reducing risk. Whilst the focus is on the modernization journey, this approach lends itself just as well for building a new digital bank or any other green-field solution.
This blogpost is the 3rd post in a series looking at some of the elements of Ecosystem Enabled Banking, and if you have not seen the earlier posts, you can find them here:
Navigating Legacy Systems in Progressive Modernization
In today's rapidly evolving financial landscape, the modernization of core banking platforms is imperative. However, one of the most significant challenges banks face is how to handle existing legacy systems. This is not a simple or small matter, and is a key element in the Ecosystem Enabled Banking process - how to best deal with and look at your legacy systems and processes.
Understanding Legacy Systems
Legacy systems are deeply integrated into a bank’s operations, often built on older technologies. While these systems have been reliable, they pose limitations in terms of scalability, flexibility, and integration with modern technologies. However, legacy isn't inherently bad. It often contains valuable elements that can be reused or anchored.
Strategic Modernization Approaches
1. Legacy Anchored:
This approach involves integrating new systems with relevant elements of existing legacy platforms. The idea is to leverage the strengths of legacy systems while progressively introducing modern capabilities. This method reduces risk and ensures stability.
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2. Legacy Replaced:
In some cases, it might be necessary to replace legacy systems entirely. This approach involves a transition to new platforms, and often is executed by banks as a large big bang migration. This can be suitable for urgent modernization needs but comes with higher risks.
3. Coexistence and Controlled Transition:
Allowing legacy systems to coexist with new platforms can often be beneficial. For instance, instead of forcing a migration of all capabilities, letting certain products, like mortgage contracts, expire naturally within the legacy system can reduce risk and improve customer retention.
Balancing Innovation with Legacy Constraints
A forward-thinking approach is essential. Legacy systems should inform but not constrain the new system’s scope and vision. It's crucial to reuse what works well in the legacy while innovating for the future. This ensures modernization leads to a system that is not only current but also adaptable to future business needs.
Architectural Alignment and Roadmap Development
Defining a clear architectural roadmap aligned with strategic goals is critical. Whether anchoring to legacy systems or replacing them entirely, the roadmap should guide the execution process to ensure a seamless transition.
Avoiding Legacy Analysis Pitfalls
Traditionally, banks have started their modernization journeys by deeply analyzing their legacy systems. However, this can lead to a future vision overly influenced by the past. Instead, focusing on desired business outcomes and capabilities can drive a more innovative and effective transformation.
My recommendation is to initially put your legacy to one side and focus on the future state of your bank with a blank paper, and return to your legacy as a heat-map exercise in context to your future state capability model.
Conclusion
Modernizing core banking platforms while managing legacy systems is a complex but achievable goal. By strategically deciding between anchoring, replacing, or allowing coexistence, banks can innovate while maintaining operational stability.