While the giants of the digital world are achieving new successes on flexible architectures, banks are falling further behind on their legacy systems.

Legacy systems are one of the biggest barriers keeping banks from imitating the digital experiences provided by the likes of Apple, Google, and Amazon. These companies deliver more personalized services faster than banks can, and the competition among them means they have to constantly refine those experiences and deliver them more quickly. That competition is driving the digital world in a direction of real-time, anywhere access to services, data, and analytics for enterprises and customers.

This kind of ubiquitous and instant access to data and insights will be realized by open, flexible architectures that smooth the collection of data from a multitude of inputs and share insights instantly with various devices and applications. Apple, for instance, is using IBM’s Watson to analyze data from its HealthKit system for gathering health and fitness tracking data. The insights gained from that analysis will be shared in real-time with user’s healthcare providers through the cloud.

Banks aren’t on the same track as these digital players. While other companies are racing to better understand their customers’ needs and deliver products and solutions anywhere at any time, banks are going to be left in the dust. The gap between the services a customer expects from an Apple or Amazon and the services they get from their bank will continue to widen.

Banks’ legacy systems obstruct the movement of data between silos, preventing the 360-degree view of the customer that is required to provide personalized services to customers anywhere, anytime. They’ve built layers and layers on their legacy core systems to support new consumer tech trends like mobile and social media. Those layers mean banks can’t move quickly: most banks struggle to update their mobile banking apps on a biannual basis, or tie together their smartphone, tablet, and online banking experiences.

THE NOT-SO-DISTANT FUTURE

In the not-so-distant future, customers will demand banking services in their connected cars, and will want video conferencing with mortgage and wealth management specialists in their homes via laptops, tablets and smart TVs. If banks can’t keep up with the pace of innovation in mobile, tablet, and online banking, how will they be able to handle more new channels and customer demands? Silos between business lines and systems will make it a struggle to share and analyze data from so many channels, and the complex layers of applications wrapped around banks’ legacy systems will slow the deployment of new products and services.

Addressing the legacy systems issue is the only way for banks to keep up with customer expectations in an increasingly digital world. Although there are middleware solutions on the market that can wrap around legacy systems to more easily share their data with other systems and applications, these are a stopgap solution. The lifetime of legacy systems is tied to the staff that works with and maintains them, and when those employees retire, they’ll be replaced with younger talent that is unfamiliar with such aging systems.

Fortunately for banks, many core systems providers have been working to componentize their offerings, breaking their systems down into smaller parts that can be implemented piece-by-piece. This reduces the risk of having to replace an entire core system all at once. Instead, the project can be simplified into small, manageable parts.

Every bank needs to have a strategy in place before embarking on a big systems modernization project. Metrics need to be determined to evaluate progress and determine the returns that the bank needs to see from such a massive investment. The ability to replace a system component-by-component makes it easier to determine milestones and objectives to help determine the strategy and metrics.

Banks can now rid themselves of a massive burden to their business by taking this less risky approach to modernization. Replacing legacy systems and implementing analytics tools that can generate instant insights from masses of data will allow banks to achieve that agility and develop personalized products and services that meet the needs of the digital consumer. To make the most of the opportunity to modernize, banks will have to:

• Remember that data is the guiding principle – collecting data, organizing it, and sharing it quickly across the enterprise will determine whether the migration is a success or failure in the end. Data and analytics will build the connection between customers and enterprises in the digital world through personalization and faster resolution of customers’ issues. Build a blueprint for how the new systems architecture will enable the flow of data and insights between customer and enterprise devices and applications, and refer back to it when necessary during the project.

• Have their data management cards in order before migrating to a new system. Best practices for collecting, organizing and sharing data should already be business-as-usual. If not, more employee education will be needed before undertaking a big migration project. Also, banks will need to cleanse their data before a migration, so data isn’t lost, corrupted, or rendered useless because new software can’t read it.

• Separate staff so they can focus exclusively on the migration. Staffing needs are a tricky shuffle for banks during modernization projects. Employees are often tasked with their daily objectives in keeping the bank running, while also helping with the modernization. A project as large and vital to the bank’s success as a core system replacement requires the undivided attention of dedicated staff. That staff should be pulled out of their normal work environments and given a new space separate from day-to-day operations so they can focus on the project.

• Remember that your core vendor shouldn’t be your innovation lab. A new core system will be the platform on which a bank will deploy its innovation strategy. That doesn’t mean that the bank should depend on its vendor to plan and execute that strategy though. The relationship with a core vendor is central to a bank’s success, but the bank needs to map its own path forward in the digital world. Fully leveraging available data and gaining new customer insights should be the guiding principle there as well.

If banks don’t convert to a flexible systems architecture then new entrants that are better at leveraging data and analytics will gain ground by offering more personalized services. So when thinking about how to compete with these new players, banks should ask themselves: what is holding us back from making full use of our data? More often than not, legacy systems will be the answer.

Paul Schaus is president of CCG Catalyst, a bank consulting firm. Contact him at consultant@ccg-catalyst.com or 1-800-439-8710.