The need for security in the banking industry is greater than ever, and innovation in the industry’s multiple sectors has taken off in the last few years. Unfortunately, the veterans in the industry are falling behind with innovation and that results in a dangerous test of fate for customers. According to The Guardian, Federal Reserve has been hacked more than 50 times in the past year. Not only do banks risk security issues when they don’t innovate and update their systems, they sacrifice user experience and fail to meet customer demands.
With the growing number of fintech companies in sectors such as Lending & Financing, Insurance, Markets & Exchanges, Financial Management and Payments & Transfers, the need for brick-and-mortar banks is diminishing. As Bill Gates has said, people need banking, not banks. Financial institutions have used technology to slightly improve the services they offer, but this can hardly be counted as innovation. “Fundamentally the products and the services that banks are offering are no different than those they have been offering for the last fifty years, if not longer,” points out Jonathan Charley of SAP in a recent FinExtra article.
One of the most important updates to be made in financial institutions is the modernization of legacy systems. Without updating these systems, financial services organizations hinder their ability to innovate in other areas. Some companies have been using the same underlying technology for the past fifty years, and with each year the company doesn’t update more security problems are likely. Legacy systems are weaker, and therefore a more vulnerable target for malware and hackers.
A recent study by SecurityScorecard puts into perspective just how dire the banking industry’s security is, and blames legacy systems for many of the breaches experienced throughout the industry. The only major bank in the U.S. that scored an ‘A’ on the report was Bank of America, and 95% of the U.S.’s top banks scored a ‘C’ or below. Read the full report here to see the criteria for these grades. “The biggest vulnerabilities faced by the banking industry resides within the use of legacy systems that run outdated software, yet these systems are still critical to the performance of daily business operations,” said Alex Heid, chief research officer at SecurityScorecard. The challenges with updating legacy systems can be a deterrent, especially for big companies, but there is no excuse that justifies putting millions of customers and their hard-earned money at risk.
Understanding which applications are best suited to which modernization approach is not straight forward but we have created a step-by-step guide to help you through this process. While legacy systems can certainly be a barrier, they are not insurmountable. With the help of a vendor specializing in legacy modernization, the task can be tackled and financial institutions can effectively re-architect legacy applications in a timely manner.