Digital Transformation Update
Last year, before the pandemic hit in full force, we discussed the need for digital transformation in legacy systems among core banking systems. Not long after we published that article, the world shut down for all intents and purposes. This change clearly showed the need for a complete digital transformation as banks and credit unions had to go digital to continue meeting their customers’ needs.
So now, 18 months and many changes later, where are we? When the banks had to shut down during 2020, many taking an incremental approach to switch to digital found that this did not work. The three main legacy systems also found that they were not making progress as quickly as they needed to. This led to a change in focus, with a stronger push toward making the switch. Here is a closer look at what needs to happen and when those changes may take place.
What Changes Need to Happen for Legacy Systems to Meet the Needs of Today’s Community Bank or Credit Union
In banking, three names consistently stand out as core systems because they have been in the market for decades. FISERV, FIS, and Jack Henry & Associates have served their clients well over many years, and hundreds of banks around the country use these legacy systems.
Today, each of these legacy systems is committed to helping their clients in 2021 and beyond by updating their core applications to fit the new and expanding digital world. Here are some steps they are taking:
- Rewriting original products– The legacy core systems have good products that historically have delivered what banks needed, but they need to be rewritten to adapt to the new world. The addition of mobile and online banking and the huge rise in the volume of debit card and credit card processing all need to be taken into account in this shift.
- Including more modern digital languages – One challenge the legacy systems are trying to address is that their platforms include digital languages that new products do not use and new IT professionals are unfamiliar with. They are rewriting these to include modern digital languages.
- Integration– Modernizing the language of the platforms allows banks to integrate the products they want more easily with their core systems (Application Programming Interface APIs). These new APIs will enable banks to add the service their client’s needs and seamlessly integrate them with their core platform.
- Adapting to real-time payments – Today’s banking customer wants to be able to make transactions in real-time. Even a delay of a few hours is frustrating to the modern consumer. As a result, the legacy systems are making changes to adapt to real-time payment processing instead of modified real-time or delayed processing to meet these demands.
Each of the core legacy systems is tackling these changes in a different way. We are in the process of meeting with each one to see their timeline and will let you know what that timeline is soon. Banks that are still relying on these core systems should note that the digital transformation is coming. It’s happening now, and they need to be prepared.
Implications of the Digital Transformation
This digital transformation is vital for several reasons. First, it allows banks better cost management for their operations. When all applications and the core system work together well, and digital banking eliminates steps for the bank’s employees, costs are easier to manage.
Second, digital transformation creates a better customer experience. Customers expect their bank to deliver reliable, online banking applications, and this requires a core system that is compliant with modern digital banking products.
Finally, when the back-office processes are streamlined, employees can work more efficiently. A better technology workflow improves the work for employees, which improves job satisfaction and overall customer service.
Other Core Systems and the Digital Transformation
The legacy systems are not the only option for today’s banks. In May, we discussed eight new and established digital applications for banks that offered cloud-based application options. These included:
- Q2 CorePro
- Nybus SmartCore
- FIS Modern Banking Platform
- Fusion Phoenix
- DNA Fiserv
Each is still a valid option that provides needed digital tools to many banks, but their focus has been on large banks. As the digital transformation continues, we will watch how these applications will bring their apps down to reach the community bank and credit union market.
The Bottom Line – Digital Is Coming, Banks Need to Plan
The digital transformation is coming, and the events of 2020 showed banks that it is necessary more than ever before. Yet, core system replacement is not always possible, especially for local and community institutions. So what are banks to do?
At L. Michael Wofford Consultants & Advisors, we will help you through this process. Our consulting services can help you evaluate your current systems and your current and future need, then make a strategic decision about how to move into the digital world.
We remain committed to building relationships with the core system companies to stay abreast of how they are changing and adapting to this new digital banking trend. With a plan in place and our knowledge of the digital transformation process, you can confidently embrace this new digital banking world. Reach out today to schedule a consultation to discuss your core banking system and the digital transformation.