Over Half of All Banks Express Concern About Legacy Tech Dependency
- Over half of bank execs polled are concerned about dependency on legacy technology
- The same execs have a positive outlook for 2024
- Less than 8% of the execs polled expect to reduce their tech spending in the coming year
Monitor Daily reports on a survey of over 100 bank executives which found concerns about dependency on legacy technology, tech debt, and the challenges posed by both.
Dragonfly Financial Technologies, a digital banking and treasury management financial technology company, conducted the survey and discovered ...
... Executives are overwhelmingly bullish about the banking industry, with 85% having a positive outlook for 2024. With renewed optimism, 51% of respondents believe banks are expecting to increase their technology spending or to keep it the same (41%), while less than 8% are expecting to decrease their technology spending in 2024.
This is consistent with an earlier report from Bain & Company. However, Bain & Company points out that the best performing banks target specific needs that have a significant impact.
Concerns and Challenges
At the same time, these bank executives reported that fraud prevention, staffing challenges, and budget constraints are top concerns, along with their current dependency on legacy technology and rising technology debt -- approximately the same percentage of executives (51%) said legacy technology/technology debt is standing in the way of their bank’s success.
Bank executives also noted the following significant concerns for 2024:
- 65% are most concerned about protecting and growing deposits.
- 59% believe fraud will be a top concern in 2024.
- 58% believe staffing resources present the biggest challenge to digital business banking, while 46% believe feature function/competitive gaps and budget are cause for concern.
To address these issues, many banks plan to invest in new technologies like real-time payments, FinTech applications, and API banking, while cautiously moving more operations to the cloud.
Overcoming Legacy Technology
Inevitably, all technologies will become out-of-date -- this is just how the tech cycle works. However, financial institutions are notorious for taking their time to upgrade to the latest technology -- sometimes to their own detriment. They adhere to the old adage: "If it ain't broke, don't fix it."
Unfortunately, this strategy leads to catastrophic consequences. For instance, almost all banks were not concerned with check fraud back in the mid 2010's, choosing to stick with legacy transactional analysis and image analysis systems developed over a decade before. Then, in 2018, the check fraud boom hit and banks were left scrambling to stop check fraud. Even today, many banks are still resistant to tech updates -- leading to massive losses, as we saw in the case of Regions Bank.
This is also true for check processing, where many financial institutions still utilize legacy OCR systems that achieve 80-85% accuracy rates. Financial institutions accept the 15-20% that require additional manual intervention as the cost of doing business, rather than upgrading their systems to leverage AI and machine learning that achieve 99%+ accuracy and read rates -- effectively eliminating manual intervention.
It's critically important for financial institutions to examine their current technologies, assess the risks of continued use, and invest in the latest tech in order to ensure effective business continuity.