Recently, I attended the Banking Transformation Summit in London. Among the many insightful talks, the discussions by senior executives from established banks such as Barclays, Lloyds, HSBC, and Standard Chartered were particularly compelling. The seasoned bankers expressed their frustration with how their banks’ legacy systems are stifling innovation.
A few of the executives even referred to their banks as dinosaurs. These established banks, with their centuries-old brands and loyal customer bases, face the significant challenge of avoiding extinction. Their customers, often resistant to change, expect stability in their digital banking experiences. Moreover, these banks' infrastructures are frequently a complex web of inflexible, outdated systems, making even minor updates nearly impossible.
Standing still is not an option. While trust and reliability are crucial, they are not enough in an era where agility and innovation are required.
Neobanks, free from legacy systems and historical baggage, have taken advantage of this. They build their infrastructure using the latest technologies, allowing them to quickly deploy and retract updates and features without causing discontent among their younger audience, building trust and loyalty for future generations. However, this advantage is not permanent. The digital landscape is constantly evolving and today's technologies and trends will be outdated in three years. As neobanks age, they too will face the risk of their cutting-edge systems becoming outdated unless they continuously evolve.
Established banks must overhaul their architectures and prioritize customer experience. So, what are the strategies for modernization? How can legacy banks compete with the speed and risk-taking of neobanks without jeopardizing their stability?
One strategy is to create a neobank within the legacy institution, as seen with several established banks. These banks created spin-offs designed with modern architecture and tailored to younger users, offering a seamless and engaging experience. By doing so, they can retain older customers while appealing to younger generations, thereby future-proofing their operations.
Building on separate, modern technology stacks allows for greater flexibility, scalability, and innovation without the constraints of legacy systems. Once these new banks are tested and their systems proven, their features and technologies can be gradually integrated into the parent bank, ensuring a smooth and sustainable transformation. This approach makes the project of transforming legacy systems manageable and ensures that the bank's internal stability is not compromised. Meniga has played a crucial role in many such initiatives.
Another strategy is constant architectural renewal. Ant Financial's approach is to refresh their entire systems architecture every three to four years to avoid ending up with legacy systems. This innovation mindset highlights the difference between tech companies in finance and traditional financial institutions using technology.
Digital transformation is challenging but full of opportunities. By embracing continuous innovation and strategic renewal, legacy banks can shed their dinosaur image and thrive in the digital age.
If you’re ready to embark on this journey and explore how Meniga can assist in your digital transformation, reach out to our team. Let’s build the future of banking together.