Traditional banking institutions must work harder to innovate with the latest cloud-native platforms and move on from their reliance on legacy systems, a new report has found.
IDC revealed that banks are still investing huge sums in legacy payment technology, missing out on potential revenue opportunities available through digital platforms. It predicted that finance companies will spend £57bn annually on legacy payments technology in 2028, compared with £36bn in 2022.
Although banks are starting to deploy cloud computing technology after years of deliberation, legacy-based services are still widespread even if sometimes combined with cloud said IDC.
Many banks are seeking a way out of the legacy cul de sac by investing in fintech alternatives. HSBC for example has taken a $35million stake in Monese, following Lloyds, Bank of America, Nationwide and others who have made similar moves. UBS and JP Morgan have gone further and acquired whole fintechs in the form of Wealthfront and Nutmeg.
“Despite being much younger than traditional financial institutions, digitally native firms have long leveraged their unique ability to offer customers more agile services,” commented Ian Bradbury, CTO of Financial Services at Fujitsu UK&I. “It’s clear that these digital offerings are driving competition in the banking sector with challengers like Starling Bank hitting profitability. Thankfully, however, the traditional players are looking to catch up, investing billions in fintech. But this commitment to new technology doesn’t necessarily eliminate the old, and over the years the mainstream players have acquired a host of legacy systems and the longer these old processes are maintained the more difficult moving away from them becomes. We’re already seeing a real drive for the consolidation and simplification of the technology estate, but this must accelerate if banks hope to effectively modernise and reduce soaring support costs that will build up over time.”
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