Exciting technologies like AI and machine learning stand to push a bank’s performance to new heights of efficiency and growth. A modern core will guide success—here’s why modernizing now is essential.
By Temenos
Would you install a hydrogen fuel cell to power a horse-drawn carriage? Or a Rolls-Royce UltraFan jet engine in a World War I-era biplane? Of course not.
So why adopt cutting-edge technologies like AI and machine learning on a banking core that was designed decades ago?
The pace of innovation in banking has accelerated from quick and linear to warp speed and exponential. Today’s customers—be they large corporations, small businesses, retailers, or individuals—no longer see banking as a separate activity, or something they need “to do.”
Instead, financial products and services must integrate seamlessly into daily life, tailored specifically to each user’s needs. Achieving this convenience requires a modern core designed to maximize the potential of cloud and other advanced technologies. The appeal to innovate on top of outdated systems is understandable. Migrating to a new core can be time-consuming, costly, and uncertain. However, the cost of inaction is far greater.
Here are three reasons why modernizing now is critical:
Loyalty pays
Customers expect modern banking services, and they will be grateful—and loyal—to financial institutions who innovate their cores to deliver what they want. Core banking systems today are expected to integrate real-time transaction data with analytics to create personalized customer experiences and generate new value. Intelligent systems will eventually oversee household and corporate budgeting, purchasing and other activities that benefit both banks and customers. Additionally, advanced analytics will enhance fraud detection, sanctions screening, wealth management, investment management, automated error handling, mortgage processing, and debt collection, among many other areas of the business.
However, trying to bridge gaps using substitute measures like Generative AI with semantic layers on legacy cores is a suboptimal approach.
It takes a new core designed to make the most of the cloud and other technologies to deliver.
According to some reports, 75% of European banks suffer from above-average levels of data duplication and redundancy—a key symptom of aging core systems. Historically, an above-average number of banks on the continent—six out of 10—also find it challenging to deploy self-service data analytics across the organization.
Innovation has gone beyond addressing technological inconveniences.
It’s about winning in the business world.
Innovation saves money
CIOs have big plans to make life better for the bank and customers alike, but keeping the lights on and keeping things compliant with regulators calls for time and resources. On a legacy system, a CIO can expect to allocate significant expenditures—and hefty manhours—managing hardware, software, storage, networking, maintenance, upgrades, etc.
Keeping up with regulatory requirements eats into expenditures, close to 16% of IT spending in some instances. According to data compiled by the Temenos Value Benchmark team of consultants and financial and IT experts, 30% of IT expenditures go towards keeping the lights on and to keeping up with regulators. Add to that, patching up legacy cores is not cheap. These quick fixes can end up costing more over time because of ongoing repairs and inefficiencies.
Modernizing not only makes it easier to keep the lights on and remain compliant, but it also creates a more consolidated view of customers and their needs, improves straight-through processing, greatly enhances customer services and opens the door to continued demand for banking products and services down the road.
Thrive or Dive
While the need to modernize is widely known, kicking the can down the road with patchwork approaches to upgrades will only work for so long.
High maintenance costs will drain a financial institution of its resources, while more time and money will be required to remain compliant with oversight and regulatory bodies, and most important of all, it will become increasingly difficult to adapt to increasingly complex demands from an increasingly sophisticated customer base.
The time-to-market metric illustrates the effectiveness of a modern, future-proofed core more than any other. Getting products to market at the right time is crucial, and getting the right products to the right customers in the right markets is exponentially more crucial. A new product launch that would take 30 weeks on a legacy core takes only eight weeks on a new core, and the products will be superior as well. Translation: On top of the cost savings that a new core brings, revenue stands to increase as well
The decision to modernize a core should not be on a to-do list. It should be far along in the planning stages if not already underway. Legacy cores may have kept the lights on in the past, and they might still do so in the near future.
But not forever.
A new core whose DNA is designed to make the most of the cloud and other modern technologies will empower a financial institution to use the latest technologies like AI, machine learning and data analytics to serve their customers best. A core running on technology that dates back to the Cold War will not. Winning financial institutions with ambitious plans for their customers, powered by modern technology, are poised to succeed both in the short term and in the long run. Tools like AI and data analytics today will only grow in demand tomorrow, so why try to keep up with a legacy core chained around your neck?
A modern, powerful and efficient jet engine fits best in a modern, powerful and efficient aircraft. Same holds true with a game-changing hydrogen fuel cell.
Innovate today. Visit Temenos Core Banking page for the latest thought leadership from banking experts.