ANZ banks tackle legacy systems with modernisation push

Implementing smart, steady improvements will get you where you want to go.

Technology has long since ceased to be backroom business for Australian and New Zealand banks and financial service providers. In today's times, it's the primary means by which they can gain an advantage over the competition.

ICT budgets reflect this reality. The largest banks in Australia and New Zealand are dedicating billions each year to new tools and technologies while their smaller counterparts continue to scale up their spend, in a bid to keep pace.

Major banks in Australia and New Zealand are burdened by legacy technology, creating critical technical risks and demanding significant investment in core platform upgrades. The need for simplification is paramount, as complex back-office systems impede innovation. Simultaneously, smaller banks, reliant on inflexible, generic solutions, struggle to keep pace with evolving digital customer demands. Growing consolidation in this sector is further accelerating modernisation efforts, as banks aim to maximise merger synergies by optimising technology and improving digital experiences.

But whether that extraordinary collective investment is delivering an acceptable return is open to question. 

Globally, banks convert just five to 10 per cent of every dollar of tech spend into additional business value, McKinsey research has revealed.
 

The quick fixes that cost and cost

It's a sobering statistic and one that can be largely attributed to what might be best described as 'technical debt' – the 'tax' organisations pay for integrating convenient but less-than-ideal solutions into their operations.

These quick fixes may do the job just fine in the short term but very often there's a price to be paid down the track. That's because, in most instances, they compound the complexity of what are typically already highly complex tech stacks.

The net result, according to McKinsey? More for ICT departments to do on the maintenance and support fronts, increased cost of ownership, increased time to value and, perhaps most concerningly, a reduction in both the capacity to innovate and the budget with which to do it.

The permanent solution to this can-kicking-down-the-road practice is simple enough: banks need to decommission the legacy systems that are holding them back and replace them with modern digital alternatives that enable data driven decision making and personalised, responsive customer experiences.

But how best to do so remains the $64 million question.
 

Going for bust with a big bang approach

'Big bang' replacement is one option and it has its attractions, particularly for banks whose core systems are in urgent need of replacement. A monolithic overhaul of both front and back-end platforms – core financial technology, user interfaces, the whole shebang – is a dramatic, attention-grabbing gambit that may impress customers, and impress on shareholders, that the bank in question means business.

That's provided everything goes to plan – never a guarantee where enterprise deployments are concerned. The risk of time and cost overruns is considerable, and there's also the danger solutions that are too long in the development and deployment phases will be outdated even before they're up and running. Significant internal resources are generally required to get results and seriously good management definitely is.
 

The 'greenfield' methodology

Alternatively, tech leaders who don't have the appetite or budget for Bigger than Ben Hur ICT renovations may opt for the greenfield approach – reusing elements from existing ICT infrastructure to create a cloud native tech stack that can operate in tandem with legacy systems. 

Taking this tack can yield results faster and more cheaply than wholesale replacement, and eliminate the risk of disruption to operations to boot.  

But – and it's a big but – it's not without its own risks. 

The purpose of a greenfield approach is to test new technology and customer propositions and there's always the possibility that the systems you create will fail entirely. That's not an outcome many tech leaders would relish having to explain to their C suite colleagues and the boards to which they, in turn, report.
 

Taking a progressive approach

Fortunately, there is a third way – a middle of the road approach that offers medium speed and cost, at significantly lower risk. Progressive modernisation, sometimes called journey-led progressive modernisation, is a digital transformation method that centres around identifying friction right across the enterprise and eliminating it, one customer journey at a time. 

It's an end-to-end modular process that saves time and money, reduces complexity, accelerates the rate of delivery and keeps banks laser focused on delivering value. 

A steady, iterative approach, it can enable banks to strike the optimum balance between customisation and speed.  
 

Tools to make the task easy

But progressing with a program of progressive modernisation can be a challenge, in the absence of the right tools. 

That's where engagement banking technology comes into play. Composable, pre-integrated customer experience capabilities and out-of-the-box journeys make it possible for banks to deliver new customer experiences efficiently and cost effectively, at scale.  

If getting more value out of the six- and seven-figure sums your institution will spend on ICT programs and projects in the upcoming financial year is a priority, it's game changing technology you'd be well advised to explore.