Legacy banking systems are outdated IT infrastructures that are expensive to maintain. As technology advances, the costs to support these aging systems rise substantially over time. According to industry experts, banks spend an average of 75% of their IT budget on maintaining existing legacy systems.
To reduce costs, banks must modernize their legacy systems. This involves upgrading or replacing outdated software and hardware with current technologies. The transition allows banks to take advantage of increased automation, scalability, and security – all while lowering operating costs.
Steps banks can take to cut costs during this process:
1. Migrate to cloud-based services
The cloud provides on-demand access to computing resources that scale as needed. This eliminates the expense of maintaining on-site data centers and servers.
2. Employ agile development methods
Using iterative development sprints, banks can roll out new systems incrementally while retiring legacy components. This avoids prolonged downtime and disruption.
3. Invest in API integration.
Application programming interfaces (APIs) connect systems and share data. Banks can integrate new core systems with existing peripheral systems through APIs, avoiding the need to replace everything at once.
4. Retrain staff
As new systems are implemented, some legacy skills become obsolete. Banks should retrain staff on new technologies or bring in outside experts to facilitate the transition.
5. Review third-party contracts
Banks often rely on vendors to support legacy technologies. By renegotiating or ending these contracts as systems are upgraded, substantial cost savings can be achieved.
Strategies for Reducing IT Costs During Digital Transformation
• Consolidate Systems
Banks typically have numerous legacy systems that are inefficient and expensive to maintain. By consolidating systems and simplifying IT architecture, banks can reduce costs through decreased licensing fees, less complexity, and improved operational efficiency. Migrating to a single digital platform and decommissioning legacy systems is an effective approach.
• Adopt Cloud Solutions
Transitioning infrastructure and applications to the cloud eliminates the need for on-premise data centers and hardware, significantly lowering capital and operational expenses. The cloud also enables scalability and flexibility as needs change. However, banks must carefully evaluate security and compliance requirements when choosing a cloud provider.
• Automate Processes
Many banking processes are manual, repetitive, and time-consuming. Automating key processes like account opening, lending decisions, and customer service can minimize human error, reduce staffing costs, and improve the customer experience. Robotic process automation and AI are powerful tools for automating processes end-to-end.
By consolidating systems, moving to the cloud, and automating processes, banks undertaking digital transformation can gain major cost efficiencies. With an optimized IT infrastructure and strategic technology partners, banks can reduce costs by up to 50% while better serving customers in today’s digital world. The key is starting with a plan to simplify and modernize legacy systems in a secure, compliant, and customer-centric way.
Case Study: Modernizing a Tier 1 Bank’s Systems in Africa While Cutting IT Costs by 30%
A large tier 1 bank in Africa needed to modernize its legacy systems to reduce costs, improve efficiency, and better serve customers. By transitioning to a cloud-based core banking system, the bank cut its IT costs by 30% within two years.
Migrating to the Cloud
The bank migrated its core banking systems to a cloud-based solution, reducing infrastructure and maintenance costs. This allowed the bank to shift spending from running data centers to improving the customer experience.
Standardizing and Automating
The bank standardized processes across its 200 branches, enabling increased automation. Previously, the bank’s legacy systems lacked integration, requiring manual data entry and reconciliation across systems. The new cloud-based core system provided an integrated view of customer data and transactions across the bank. This reduced manual work and the risk of error, allowing staff to focus on higher-value tasks like customer service.
Decommissioning Legacy Systems
The new system also allowed the bank to decommission most of its legacy systems, reducing licensing and support fees. The bank went from over 25 systems to just three, simplifying its IT landscape and gaining a unified view of operations and customer data to enable faster product innovation.
The bank’s transition to a modern core banking system reduced costs through cloud migration, process standardization, automation, and decommissioning legacy platforms. While the upfront investment was significant, the long-term gains of a simplified, agile technology foundation and lower total cost of ownership made the business case clear. Other banks can realize similar benefits by taking a holistic approach to modernization.
By taking an iterative approach, leveraging cloud technologies, and implementing an enterprise service bus, banks can successfully transition systems while mitigating risks.
Start with a roadmap to guide the multi-year journey, focus on decoupling and reusing services, and invest in your team to build the skills needed for the future. With vision and perseverance, legacy modernization can transform your IT operations into a strategic powerhouse that delights customers, engages employees, and boosts the bottom line.
The path is complex, but the destination is a banking infrastructure equipped for innovation. Begin the first steps today toward a modern, cost-efficient technology foundation.
