Legacy technology in banking is the term used to describe outdated systems, software, and hardware that are still being used by banks. These legacy technologies are often difficult to maintain or upgrade, can be expensive to operate, and may not provide the same level of security as modern solutions.
As a result, many banks have begun transitioning away from these older systems in favor of more efficient and secure alternatives. This article will explore what legacy technology is in banking and why financial institutions need to make the switch to modern solutions.
The definition of legacy technology
Legacy technology is any system that has been around for a long time and may be outdated. It might include computer hardware, software applications, operating systems, physical devices, or interface technologies. Legacy technology in banking can also refer to back-end infrastructure such as databases and networks.
Not sure if the technology you’re using is considered legacy? An easy way to tell is to check if the software still receives updates or support from developers or creators. If not, then it’s an outdated legacy system (and, in this specific instance, referred to as an end-of-life system).
Common examples of legacy technology in banking
Common examples of legacy technology in banking include mainframe computers, manual processes, paper-based information storage systems, and outdated communications systems. These technologies may have been used for decades by banks but are now considered inefficient or insecure compared to modern alternatives.
Advantages and disadvantages of legacy technology
Despite its challenges, legacy systems do still hold some value. While this value diminishes over time, digital systems offer numerous benefits, particularly in peripheral systems rather than the main platform. Ultimately, these legacy systems do still work and are likely a critical part of your financial institution’s day-to-day operations.
It can also be costly to upgrade your systems, which is why many organizations opt to keep legacy systems intact — even if they’re at the end of life or can’t scale with your institution. This cost can be present both financially and operationally, as your team may not immediately have the time or resources to upgrade your systems.
However, maintaining legacy technology in banking can present numerous issues. For example, it can be costly to maintain, difficult to upgrade, and may not support the latest security protocols due to a lack of service from developers. Additionally, legacy technologies often lack integration capabilities and scalability, making them difficult to use in a modern environment.
Benefits of investing in modern technology
When making the switch to modern banking technologies, financial institutions need to understand the benefits they will be receiving in exchange for their investment. This includes improved performance, scalability, and integration capabilities. By replacing legacy systems with modern solutions, banks can ensure they are keeping up with the ever-changing landscape of the banking industry.
By switching to modern solutions, banks can improve their efficiency, reduce costs, and increase security. This will help ensure that customer data is better protected and that financial institutions are better able to respond to changing customer needs.
Challenges faced during the upgrade process from legacy to modern technology
One of the biggest challenges faced when upgrading from legacy to modern technology is the process of migrating data and applications. This can be both time-consuming and expensive, as banks need to ensure that their systems are secure and compliant with industry regulations.
However, it's even more costly when you fail to upgrade to newer technology systems. In fact, the annual increase in legacy technology maintenance is 7.8%.
We recommend financial institutions evaluate which solutions will best meet their needs and follow a progressive modernization approach to help mitigate the costs of replacing your existing tech.
Migration Strategies for Financial Institutions Upgrading to Modern Technology
Before you migrate, your financial institution should determine exactly which parts of your system you’re looking to upgrade first. To guide your decision-making, you should:
- Determine which parts of your system take priority based on cost and functionality. If a part of your system no longer serves your needs, then that’s a great place to start.
- Evaluate various modernization and migration options. These include replacements, modular shifts, and additions. Each has its own pros and cons.
- Consider your organization’s scalability and system architecture, then pick the decision that works best for your business.
Depending on exactly how you migrate and what legacy systems you’re upgrading, data migration also may be necessary. This typically involves a few steps that your software provider can assist you with, depending on what exactly is needed.
A Progressive Modernization Approach
At Episode Six, we work with financial institutions to implement a progressive modernization approach to our cloud-based, PCI-compliant core platform, Tritium®. Progressive modernization is when you integrate newer technology into your existing systems so you can reap the benefits while minimizing the risks of downtime.
With this approach, we work with you throughout these phases:
- Assessing your existing technology stack
- Mapping out your legacy payment processes and legacy systems
- Designing the new architecture of your cloud-based system
- Developing and deploying the new system
- Ongoing maintenance and monitoring of your new system, including upgrading when and where necessary
How Episode Six Can Help
Banks must move away from these legacy technologies to remain competitive and protect customer data. By switching to modern solutions, banks can improve their efficiency, security, and customer experience. Additionally, a shift to modern technology can help banks remain compliant with current industry regulations.
At E6, we offer modern payments solutions and products for financial institutions so you can wow your customers. Upgrade payment technology in a progressive and efficient way with our multi-platform framework, and experience faster deployment of digital payment capabilities and seamless integration with existing systems. Contact us today to see how we can help your bank modernize.
