I’ve been saying for so long now that banks need to replace core legacy systems that I’m boring myself, but here I go again. The reason I’m talking about it again is that, even though some disagree and think they can fudge the issue with plug-ins, I believe that the new competition will decimate banks that don’t replace their core systems.
I say this because I talk to firms like Ant Financial who refresh their complete systems architecture every three or four years, and think that this mindset really hits to the heart of the difference between a technology company that happens to do finance (techfin), and a financial company that happens to use technology (fintech).
If you are tech first, your singular focus is on agility. It’s about fast change cycles in a microservices architecture using a SDK (software developer kit) network of APIs (Application Programming Interfaces). It’s about speed, change, service, updates, vision.
If you are finance first, your singular focus is on stability. It’s about slow change cycles in a monolithic architecture using control systems and sign-off structures that avoid any exposures. It’s about risk, security, stability, control, management.
These two opposites are difficult to marry, and the example of 40-year old legacy systems is a clear example of the latter camp. Keeping a core system operational that was first implemented in 1976 is an indictment of a bank, and it has to change. Some say not, but imagine Amazon or Alibaba having systems that were untouched for 20 years, except by operational maintenance updates. Could they function in their fast change online environment today? I don’t think so.
And this is why I give banks with legacy core systems a maximum of ten years to change. In ten years, we will be in 2027 and not far off the timelines that Ray Kurzweil originally envisioned the Singularity, where machines become more intelligent than humans. In a world where machines are coded to talk, walk, think, see, hear, touch, smell and feel, how would an IBM mainframe (92% of banks’ core systems machines) with a COBOL programme (43% of U.S. banks’ core systems code) feel? Well, it just wouldn’t. But the banks stuck with such machines would have to compete with fintechs and internet giants who are using such machines.
