McKinsey Digital weighs in with suggestions for how banks can modernize legacy systems to help them reduce IT costs and complexity while improving productivity in a competitive environment.
Even before the onset of the COVID-19 pandemic, persistently low interest rates had increased pressure on banks to reduce their IT costs. The pandemic exacerbated this issue, as banks scrambled to deliver new digital IT solutions faster and at lower cost.
The combination of these two trends has led financial institutions to explore new and more creative ways to modernize their legacy IT architecture. Even functional areas that had previously been sacrosanct—risk, finance, and regulatory compliance—are under consideration.
Given the evolving conditions facing post-pandemic banking, their Six Principles (with additional exploration on their post) are as follows:
Focus on Productivity
McKinsey & Company notes that in order to get the most from these six principles, financial institutions will need to "overhaul their operating model to focus on productivity." To drive adoption, financial institutions should institute the following key enablers:
- Engineering excellence with the proper mix of talent. Create smaller teams of better people to ensure the drive toward a more simple and standardized architecture.
- A true platform-oriented operation model of all teams. Provide all services to the respective teams via APIs.
- Cloud-native architecture with automated infrastructure and public cloud at scale. Automate the deployment pipeline as much as possible to supercharge productivity.
While modernization certainly requires technology, it cannot be achieved without the right motivation and -- most importantly -- the right people.
The Power of Collaboration
As we've noted previously, the majority of financial services leaders (at least those responding to Q2 research) believe that, in order to succeed in the current environment and near-future playing field, some manner of partnership and/or collaboration will be required. Banks won't be able to do it alone -- fortunately, companies like OrboGraph have developed technologies and provide the right support to achieve the goals.
While large financial institutions have internal resources to develop technologies -- not to mention the management structure to institute major changes and hire the right people -- this is not the case for all banks. Financial institutions need to evaluate their internal resources and partner with fintechs that can help achieve modernization.
This includes payments like checks. Check processing has moved from using OCR -- leveraging algorithms -- to artificial intelligence and machine learning technologies, which increase speed of processing as well as accuracy. Furthermore, this technology enables financial institutions to extract information from all fields and transfer it to other business intelligence systems.