Once next-gen software inevitably becomes outdated and degrades into a legacy system at some point. This transformation is unavoidable and can have harmful consequences, even threatening the future of your business. In the finance industry, where any chunk in the armor can quickly turn into a fatal security breach, neglecting the modernization of legacy systems can be a risky gamble.
In this article, I will tackle this issue and provide solutions to overcome the most difficult challenges associated with legacy software. By modernizing your outdated systems, you can reap the benefits of new opportunities. Learn how to break free from legacy software issues and move your business to the next level.
What’s a legacy system, and why businesses still keep them
Legacy systems, the outdated software, hardware, or technology still in use but no longer supported by vendors or updated, prevail in many industries, including finance. But why would a business continue using it?
The answer is not so straightforward. The finance industry, in particular, relies on legacy systems for various reasons, such as the high cost of modernization and a lack of readiness to deal with security risks during migration. Also, talent shortage and the cost of hiring often translate into limited resources for such system transformation. The need to adapt to new aspects of the regulatory environment is the cherry on top of this challenge-layered cake.
However, avoiding modernization can lead to costly maintenance, slow operations, and potential operational risks that jeopardize your business's data safety and financial security. Therefore, upgrading your business's technology is crucial to ensure efficiency and avoid risks. In this article, we'll explore the challenges you may face when dealing with legacy software, how to overcome them, and the opportunities that come with modernizing your outdated systems.
How legacy systems can restrain your business growth
Legacy systems can be a significant barrier to business growth, presenting a range of challenges that can impede progress.
Vulnerability to cyberattacks
Security risks are among the most significant issues associated with outdated technology and infrastructure. Take, for instance, the Equifax data breach in 2017, where the personal information of over 143 million people was compromised due to a vulnerability in the company's legacy systems. What's more, Equifax was well aware of the risk and failed to eliminate it months after the vulnerability patch was released.
Hampered scalability
Legacy systems can also hamper scalability, especially with the rise of SaaS integration. The inability to integrate with modern systems can result in inefficient processes and inflexibility in responding to market changes. Banks using outdated or obsolete software and hardware for critical banking operations are left with slow and cumbersome processes that leave them at the rear of the competition in the finance industry.
Compatibility issues
Financial institutions still relying on legacy apps often experience compatibility issues when integrating with more advanced software. Compatibility issues can arise when integrating legacy systems with modern software, resulting in inconsistencies and errors in data processing. Many discrepancies flow from the manually entered data, prone to typos and other human errors.
How legacy systems modernization empowers your business
A boost in efficiency
Legacy system upgrades often presuppose full-steam automation, where slow and resource-demanding manual processes make way for fast and easy automated task-solving.
Banks have been wary of transitioning from legacy systems to new ones for a long time, but now this transformation is ramping up. Cloud computing, for instance, was one of the top investment priorities for more than 40% of U.S. bank executives surveyed by Arizent and American Banker in December 2022. Such a jump in activity is associated with banks increasingly seeing that data migration allows for improved and more secure data management.
Reduced spending
Revamping legacy systems enhances efficiency and saves budget resources that maintenance costs eat at. For example, manual processes can drain much of your company's expenses. Bank of America retains an astonishing $1 billion annually by automating its legacy systems and processes. These cost savings can be redirected toward improving customer experience.
Improved customer experience
Customers expect faster and more personalized services, and competitors are investing in creating intuitive and user-friendly alternatives. That’s why offering a better customer experience is essential for survival in the financial industry. Mastercard and JP Morgan Chase, among other market’s long-known heavyweights, have upgraded their legacy systems to let customers enjoy better speed and security than their competitors can offer. Cloud technology, AI, and ML are some of the technologies essential for providing real-time insights into customer behavior and keeping up with the market.
Offering new financial services products
Your legacy system makeover can help you welcome new innovative financial services products to the market. For example, Marcus by Goldman Sachs offers a feature-rich platform for an intuitive and effortless digital banking experience. The power behind the offering is next-gen Lendtech solutions, efficient beyond the capacity of outdated software. In 2022, Marcus had more than 14 million customers and $100 billion in deposits, and the numbers are expected to grow.
Best practices for legacy modernization in the financial services
Secure API connectivity
Financial institutions can leverage risk management solutions such as APIs through integration to ensure maximum financial data security and comply with regulatory obligations. By constantly tracking their usage, properly maintaining them, and documenting all the changes, you can achieve the highest level of sensitive data protection. Of course, end-to-end encryption and multi-factor authentication should complement the security strategy.
One example of such API is Plaid’s Core Exchange. This solution offers a protected and robust data connectivity that financial service companies can integrate with their legacy systems, ensuring seamless compatibility and data migration.
Cloud migration
Cloud migration can literally take your system performance higher by enhancing scalability. By relocating to the cloud, financial service companies with legacy systems can increase or decrease their resources, depending on the current load for the system. If it often experiences demand changes or your company is in the middle of powerful growth, like Stripe, cloud service will help a lot. Cloud computing also eliminates the need for costly hardware and allows companies to easily regulate their computing power, storage capacity, and bandwidth. Additionally, choosing a reliable cloud provider ensures regulatory compliance, helping you put “check” next to some of your some regulatory obligations.
Agile and DevOps methodologies
Finally, it’s not only about the software but also the approach. When transitioning from good old to new and bold, change the processes and their orchestration. Agile and DevOps methodologies allow financial companies to react promptly to market reshuffles and evolving customer demands. Another benefit is the minimized risk of service disruptions.
DevOps builds up a unique work culture by blending development and operations, while Agile ensures robust development by prioritizing speed, leveraging collaboration, and focusing on customer feedback. For example, Chime, a U.S. digital bank, utilizes these methodologies when creating and implementing new features on its app.
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Final words on legacy modernization in finance
Getting your outdated systems renovated is a big move that requires thorough preparation. But constantly postponing it or abandoning the idea because of the challenges can eventually lead your business into a much riskier condition. Digital transformation has reached the point of no return, so the cost of refusing to keep up with innovation is increasing faster.
If legacy software supports operations critical to your business, it might be the time to go for a change. A thorough audit will show how to better transition your systems from legacy to up-to-date, and our team will be happy to guide you through the transformation process. Schedule a quick call to learn how to get rid of technical debt and outdated technology risks step by step.