4 Ways Your Legacy System Is Holding Back Your Financial Institution
There are plenty of practical reasons why financial organizations hold on to their legacy systems. There are still companies that don’t see the need to replace their existing systems, especially if the said system has worked reasonably well for a long period of time. Moreover, switching to a digital system that’s well-suited to the 21st century is a huge investment for many banking, financial services, and insurance (BFSI) companies, and there are still traditional decision-makers who are reluctant to put so much of their organization’s resources on new technology that is still evolving and breaking new barriers.
Unfortunately, holding on to your BFSI company’s legacy system can do more harm than good, especially now that the digital revolution is in full swing. Sticking to dated processes and tools during this crucial period of technological development will prevent your company from keeping up with emerging functionalities, processes, and regulations. Here are some of the specific ways that your company’s legacy system is keeping your business from reaching new heights.
It Will Only Remain Reliable for a Short Period of Time
The days of legacy systems are numbered. Digital technology is evolving and being adopted at such a rapid pace that it’s becoming the standard for many companies, regulatory bodies, and the general public. For instance, interbank transactions are carried out conveniently using digital channels, and not having a digital system will prevent a bank from taking part in this activity. A modern customer looking for insurance products and services would also typically expect their insurer to have a digital insurance platform where they can file claims and check their policies. In addition, regulatory bodies are rolling out standards that take digital advances into consideration.
Soon enough, companies that are stuck with legacy systems will have a harder time transacting with other stakeholders because they lack the digital tools needed to do so. Also, there’s a good chance that their service providers will phase out their legacy products, locking out traditional BFSI companies from updates and upgraded product versions. Finally, these traditional institutions will no longer be able to meet the demands of the tech-savvy consumers that are quite familiar with the conveniences and efficiency offered by digital-ready financial services and products.
It Will Become More Difficult for the Institution to Meet Compliance Requirements
The regulatory bodies that govern the financial industry are also quick to embrace digital technologies and make room for them in the guidelines that they set. This will make it easier for digital-ready companies to comply with the evolving standards determined by regulators, but at the same time, it will also make it harder for more traditional institutions to keep up with new requirements. Over time, the cost of compliance will balloon for these traditional companies, as their legacy system will not be able to accommodate the standards that regulatory bodies are setting, and they will need to hire more specialized personnel to manage their AML and reporting needs. The long-term cost of maintaining such an unsustainable system will prove to be bigger compared to the cost of switching to digital technologies and keeping them updated.
The Company’s Security Concerns Will Continue to Grow with Time
Financial criminals are also becoming more tech-savvy, and they use their digital capabilities to override the security measures that financial institutions are employing to keep illegal activities out of their systems. These malicious entities are less likely to target companies that have cutting-edge security measures like AI-assisted case investigators and advanced know your customer (KYC) and customer due diligence (CDD) processes since these companies can keep up with their latest modus operandi. However, criminal entities might see more traditional BFSI institutions as easy picking as these institutions often employ outdated security measures that criminals have learned how to bypass. Moreover, these institutions are less capable of detecting ongoing criminal activities.
The Cost of Switching to a Digital System Will Only Grow Larger
The longer a business delays employing digital solutions, the wider the technological difference will be between the company and its competitors. This means that more traditional financial institutions will have a larger gap to fill once they do make the switch to digital systems because they have to invest in setting a solid foundation for their up-and-coming digital-ready banking and insurance systems. Plus, they must also acquire the later upgrades and improvements if they want to level the playing field and get back into the competition.
Unfortunately, some financial institutions only scramble to go digital once their profit margins have already been affected by their lack of technological edge. Before this happens, BFSI companies should plan for the future and make efforts to look for providers of digital technological solutions that will help them transition to the digital space within a budget and at a pace that suits their particular needs. By tackling this issue sooner rather than later, financial organizations will be able to soften the impact of the digital shift on their bottom line.
The shift to digital is inevitable, and financial organizations that aim to serve future generations of tech-savvy customers should seriously consider their strategy for shifting to digital technologies today. This will enable them to compete with the changing needs of their customers and ensure the sustainability and profitability of their operations for the years to come.