Most of the world’s largest companies have been around awhile. They are vast enterprises built upon complex IT infrastructure. Most deal with thousands if not millions of customers and transactions every day. The legacy software underneath them is often decades old, and in most cases, a house of cards.
Legacy systems are inhibiting innovation and agility across many sectors, and banks are perhaps the most vulnerable enterprise class. In just the last few years, almost every large bank in the United Kingdom has been victim of breaches, denial of service, millions of payment failures and other major customer-facing disasters.
In most of these problems, blame has been found and placed at the feet of legacy systems. Some of the most respected institutions and brands in retail, restaurant, transportation, healthcare, government and especially banking are faced with broken systems. Most are built on code written decades ago — and no one’s around anymore with the institutional knowledge to fix anything, or even identify the problem. Corporate risk management of these issues has become an imperative, and has ascended to the board room of nearly every Fortune 1000 company.
Banks must lead the charge today, as the threats they face are now existential. The effects are fundamental to the currency of customer trust in doing business in an online world. What’s happened in the U.K. is a preview of what can, and is, happening here in North American markets. Not only are commercial banks racing to respond to customers’ dissatisfaction and fears, they must fight to maintain user experience expectations while constantly keeping up with regulatory compliance.
The fundamental inhibitor to established banks remaining successful are not only the legacy systems they don’t understand, can’t maintain, and cost the lion’s share of their IT budgets. There are also new players — known as the “Challenger Banks” in the U.K. — that are entering the competition by essentially bringing banks-in-boxes to market. They come to the fray already modernized, and without the shackles of a legacy systems infrastructure. The traditional “big four” UK banks like the Royal Bank of Scotland are now being threatened by shiny new names they never knew existed until recently. These cloud-enabled, innovative banking solutions are finding great appeal among a fluid customer universe, easily dissatisfied with what they perceive as old school ineptitude.
Add in yet another layer of bad attitude toward banks set in place during the 2008 meltdown. The convoluted investment banking activities of Main Street banks like RBS and Barclay’s led to government bailouts, and tremendous losses for millions, while investment bankers got their bonuses despite dragging down the commercial side. Those wounds from a cycle ago haven’t been forgotten. And with what’s going on today on top of it all, that loyal customer base from the old days is starting to vaporize permanently.
The bottom line is that the traditional banks in the U.K. and elsewhere must approach the situation with nothing less than fundamental business transformation, or risk being eaten alive. With so much data and IP locked and buried in their infrastructure, modernizing legacy systems is a good start. Taking those systems to the cloud, modernizing them, making them more reliable, more innovative and more agile gives large enterprises the opportunity to respond to the new threats and the new competition that are here to stay.
The good news is that enterprise IT managers, system integrators and software vendors are working together with more collaboration than ever to address the exploding challenge of legacy modernization.