Banking leaders are well aware of the challenges facing their current core systems—and of the benefits of modernization. In fact, 36% of banks in the U.S. are prioritizing the modernization of internal IT systems that will support a transformation of their core banking system over the next two years.1
These leaders are also aware of the risks associated with modernization. In a widely-discussed study, Boston Consulting Group found that 70% of digital transformations fall short of their objectives, often with profound consequences.2 (When BCG uses words like “profound,” we should all be nervous.)
So, how do we get out from between the need-to-transform rock and the transformation-is-risky hard place?
I’ve learned that the key to reliable and scalable transformation is an infrastructure that is fit-for-purpose – designed to meet each current and future business objective.
Fit-for-purpose approach to modernizing core banking systems
Many banks build a target state environment assuming that all the components of their core will be fully modernized to cloud-native applications. This approach breaks down when the inevitable decision gets made that some of the applications will not be fully modernized; maybe the deadline to close a data center is approaching, maybe the budget couldn’t be secured for a rewrite, or maybe a regulator is requiring progress in a short time period.
Whatever the reason, the bank now has apps that are not horizontally scalable, not built with zero trust, and not optimized for cloud services. The apps are living in a target state that wasn’t intended for them, which leads to high cloud bills, security vulnerabilities, and manageability challenges.
That’s why a fit-for-purpose approach to modernization starts with the understanding that numerous levels of transformation are best-practice for modernizing a core banking system. Leaders will want to determine the levels of transformation they’re going to perform before they’re able to establish which platforms are fit-for-purpose. For example, you may find that you have a set of apps that need to be re-developed and another set that will be lifted and shifted to the cloud.
Once you understand the different levels of transformation needed to modernize your core banking system, you can determine which platforms need to be built.