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IT Modernization is Critical but What Can Banks Really Expect?

As we turn the corner to a new year, the banking industry continues to face radical shifts and tremendous pressure to accelerate digital transformation. The influx of fintech challengers has taken competition to new levels and innovation to a pace that’s often difficult for banks to match. At the same time, surging digital adoption has shifted consumer behavior and increased demand for Amazon-like banking experiences. Last but certainly not least, regulations continue to emerge and change, particularly as the massive shift to digital has led to increases in fraud, causing legislators to take notice.

For many banks, succeeding in the face of these challenges requires taking a closer look at core technology systems. It is commonly believed that upgrading to the latest and greatest applications and cloud-based infrastructure are the keys to addressing these challenges. However, as with any big business decision, modernizing core technology comes with its ups and downs. For example, faster work systems and higher profit margins are possible, but what happens if employees debate or reject the merit of making changes?

Movingaway from outdated software and hardware is mission-critical and success begins with understanding what IT modernization is and how it fits into the bigger operational and business goals, along with taking key steps that will ensure success.

What Is IT Modernization?
It’s important to understand IT modernization and how it differs from digital modernization. IT modernization is the process of upgrading antiquated technology across three categories:

  • Application modernization. Moving toward flexible, cloud-first apps that are easy to maintain and upgrade.
  • Infrastructure modernization. Upgrading existing legacy infrastructure to meet the needs of in-house applications.
  • Workplace modernization. Making a seamless transition to hybrid or digital business models while giving employees the tools to collaborate and thrive.

Examples of IT modernization include:

  • Upgrading to faster, cloud-based computing platforms and applications
  • Upgrading infrastructure to support existing platforms or upgrading infrastructure to support new applications
  • Upgrading collaboration tools
  • Accommodating new hybrid or work-from-home digital business models

Digital modernization is similar to IT modernization (and often used interchangeably). However, digital modernization aims to meet specific industry needs. Sometimes called business systems modernization, digital modernization is upgrading technologies to meet the needs of consumers in a rapidly developing digital landscape. Although both are critical for banks today, IT modernization focuses on infrastructure while digital modernization is focused on application and how it affects the customer experience.

What to Expect When Modernizing IT
When embarking toward IT modernization goals, it’s important to have clear expectations. When modernizing applications and infrastructure, banks can expect a range of benefits including:

  • Simplified scalability. Cloud-based applications and infrastructure make it easier to go digital as well as integrate new fintech-based services into a bank’s core offerings.
  • Long-term profitability. With lower operating costs, better functionality, and faster speeds, IT modernization can help banks grow their business over time.
  • Upgraded security features. Cybercrimes are complex and infrastructure modernization offers protection from the latest threats.
  • Reduced operating costs and higher profit margins. Through more efficient back-office processes/applications and reduced cost infrastructure, the resulting gross profit is enhanced at the standing revenue figures.
  • Faster integration. New bank service offerings today are often white labeled fintech solutions. With digital and IT modernization, these services are nearly ‘plug & play’ if the overall program is sufficiently aligned to business objectives.

While the benefits of modernizing IT are clear and worthwhile, understanding these common misconceptions can also help align expectations with reality.

  • Profits will increase on day one. The costs of modernizing and removing old tech can temporarily offset profit margins. TIP: executing a process and procedure ‘people’ program in parallel or, in many cases, in advance of the technology modernization, will greatly enhance the efficacy of the overall program.
  • Everyone will embrace the new technology from the start. While younger generations grasp new technology faster, modernization efforts that leave critical team membersbehind and interrupt workflows can frustrate all parties involved if not planned properly. TIP: similar to the previous tip, a ‘people’ program that focuses on this soft spot and is initiated as a parallel priority will help eliminate the frustration of the banking teams using the technology.
  • Integration with others will be seamless. Although it’s the goal for most companies, only 1 in 4 businesseshave achieved their business system modernization goals. Tip: regularly reassess overall program objectives to ensure the ability to integrate with new services and partners continues to be directly aligned with front of house objectives.

Looking Ahead
Failing to address common obstacles can potentially derail success. Reduced budgets and a lack of technology expertise can create gaps and prevent modernization initiatives from reaching their full potential. It’s not uncommon to encounter analysis paralysis when trying to determine the desired end state, aiming to find a perfect solution rather than focusing on incremental enhancements.

Leverage a partner(s) that understands the value of a clear and defined focus on the business outcome rather than the technical result, knows the technology space and works well with or has a pre-existing ecosystem of partners. The first will provide protection against siloed activities and help avoid spot successes that ignore the overall program objectives. The second will assure that the business defined objectives are regularly addressed and tracking and reporting on progress will allow for adjustments both in technology and partners before the train runs off the tracks.

There is no time like the present. As technology continues to evolve and drive consumer expectations, banks that have the IT systems in place to deliver value to their customers and accelerate time to market with in-demand products will win.

About Author:
Greg Klang is the chief strategy officer of finance and banking at Zivaro, a trusted IT provider to regulated market customers, designing, deploying and managing secure, scalable and cost-effective IT solutions for businesses and state and federal government agencies. 

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