Investment in Modernization as a Path to Innovation

In the face of constant disruption, innovation has become a mission-critical imperative for banks’ long-term success. In fact, a September 2023 survey by American Banker shows that 80% of banks agree that innovation is not just a desired goal but a cornerstone of their strategy. It's a recognition that the financial sector continues to be shaped by the ability to adapt, evolve, and stay ahead of the curve in an increasingly digitalized world.

The path to innovation is laden with challenges that can seem insurmountable. Among the biggest obstacles faced by financial institutions is the issue of limited resources. Nearly 40% of banks identify resource constraints as the most common and formidable challenge they face when pursuing innovation initiatives.

Banks that invest in modernization as part of their strategy face fewer limitations down the road and lay the foundation for a future where they are not just competitive but trailblazers in the financial industry.

Overcome barriers to innovation

Without modernization, legacy systems impose a "tax" on institutions, diverting resources away from innovation and redirecting them toward the never-ending upkeep of outdated technology.

Banks that are stuck with legacy systems are hindered by:

• Technological limitations – Rigid and inflexible legacy systems were designed for a different era. They struggle to adapt to the growing demands of the digitalized landscape. Banks then find themselves trapped in a cycle of make-do rather than innovate, as legacy systems impede the development and deployment of new products and services.
• Maintenance and opportunity costs – Legacy systems require time and money spent to maintain as well as to ensure security, compliance, and stability. These are resources that could otherwise be invested in cutting-edge technologies, R&D, and customer-centric innovations. This results in a missed opportunity for a bank to establish itself as a forward-thinking industry leader.

Modernize to free up resources

Modernization serves as a liberator for banks whose legacy systems stifle creativity and make it difficult to respond swiftly to market shifts, customer demands, and emerging opportunities. It unlocks benefits that are essential to fostering a culture of innovation, including:

Technology cycles are accelerating; what is cutting edge today could soon be obsolete. Modernization of outdated systems is of utmost importance. The longer a bank delays addressing legacy systems, the more entrenched these systems become, making future modernization even more challenging and resource intensive.

Bridge the gap between modernization and innovation teams

To optimize efforts, modernization and innovation teams need to be on the same page — but this is not always the case. The innovation team has the exciting assignment of exploring emerging technologies and new ideas that drive the bank's growth. On the other hand, the modernization team performs the essential but more mundane job of maintaining and upgrading legacy systems to ensure day-to-day stability and compliance.

Banks must not view modernization as an impediment to innovation. It’s not an either-or situation. Rather, modernization should be a key part of innovation efforts as it upgrades core systems to enable the adoption of the latest technology.

When modernization and innovation teams are isolated, there’s a disconnect that inhibits the flow of ideas and collaboration. This leads to missed opportunities where the expertise and insights of one team are not fully leveraged by the other, hindering efforts by both teams.

Banks can overcome this divide by approaching modernization with a fresh perspective. Rather than replicating legacy systems as part of modernization efforts, innovation teams can be brought in to rethink them from the ground up. When this happens, modernization is no longer simply about upgrading outdated systems, it becomes an opportunity to reimagine a bank’s entire technology ecosystem, explore new tech, and adopt a mindset of continuous improvement.

Make every dollar count

Legacy modernization, when approached properly, is an enabler of future innovation. It frees up resources and facilitates creativity as banks lay the foundation for becoming a trailblazer in the evolving financial sector.

SoftServe provides technical expertise and consultancy to help you navigate the complexities of modernization. We understand how to combine core systems with innovative technology to deliver scalable and flexible solutions that provide a competitive advantage.