Many banks have struggled with problems in online banking or digital services in recent years because their IT system was unable to cope with the volume of transactions or simply failed. Unfortunately, the strategic further development of the IT infrastructure is often postponed - due to a lack of budget, personnel or (in-house) expertise. Often also because other projects always have a higher priority. The introduction of a new core banking system, on the other hand, burdens the specialist and IT resources of a financial services provider for 12 months (or more) - possibly without offering additional functionality for the customer. Typically, the existing system is therefore only supplemented with a new functionality, or something is corrected because the solution is no longer running, or something is quickly deactivated without being properly expanded in the core system. The whole thing is like a relationship status: "It's complicated."
Sebastian Steger, Partner at management consultancy Roland Berger, once aptly described the problem: "It's like a car you've been driving for 30 years. You keep tinkering with it, at some point it breaks down on the side of the road, and it's actually no longer fit for purpose."(1) Head cinema running, right?
But in a world where customer expectations are changing at breakneck speed and processes need to become ever more efficient, this attitude can have serious consequences. Inefficiencies, interfaces, dissatisfied customers and unnecessary costs are just the tip of the iceberg.
Two important questions
Have you ever thought about
- What the real cost of continuing to use this outdated software is,
- Why many companies are reluctant to modernize their ERP / core systems, even though the disadvantages are obvious?
We have already answered the first question in a previous article: What are the costs of using outdated business software?
In this article, we will address the second question: Why is modernization always postponed?
Why do companies shy away from modernization?
There are many reasons why companies are reluctant to modernize their outdated systems - and some of them are quite understandable:
- Complexity of the projects: Switching to new systems involves a great deal of planning and risk.
- Costs and resources: The investment in new software solutions is often high and requires time and human resources in the specialist departments and in IT.
- Habit: "It still works" - this thought prevents many companies from taking the necessary steps.
- Wrong priorities: The modernization project is time-consuming and should be planned strategically and over time. Unfortunately, there is "no time" for large projects.
- Fear of failure: A failed project, the worst case scenario, can have a negative impact on the careers of those responsible.
- Make or buy: In a volatile world, should a new system be created in-house, as the financial services provider wants to differentiate itself, or can a "standard" be used? How should the right provider (and possibly consultant) be selected?
And what are the consequences of repeatedly postponing modernization?
While the reasons seem understandable at first glance, the consequences of such procrastination should not be underestimated.
The consequences of delayed modernization
A look at the effects of using outdated software quickly shows that doing nothing is usually more expensive:
1. Rising operating costs
On-premise solutions that run on your own server hardware come with a high total cost of ownership (TCO). Cloud-based solutions, on the other hand, often offer lower operating costs and greater scalability.
2. Security risks
In times of growing risk potential, increasing expenditure is required to maintain the actual security of (in-house) systems (cybersecurity) on the one hand and to meet the regulatory requirements in the transition from BAIT to DORA on the other.
3. Inefficient processes
Old systems hinder the workflow. Poor or faulty business processes persist and deteriorate over time. This leads to dissatisfaction among customers and employees.
4. Missed innovations
Over the years, IT systems become increasingly complicated due to constant, perhaps not always documented, updates. The outdated systems are sometimes incompatible with innovative solutions on the market. Either bridges have to be built between old and new, which in turn costs money and time, or the decision is made to keep the system as it is. New innovative technologies cannot be integrated.
5. Loss of reputation
The older the banking systems, the longer a transaction or financing decision takes. In today's fast-moving world, these systems have to process more and more transactions faster and faster. If the system is not scalable and cannot handle large volumes of tasks at the same time, consequences such as failures, breakdowns and problems are inevitable. As customers are less loyal, they are more likely to switch banks. The result for banks: dissatisfied customers and loss of reputation.
The hidden costs
It may seem paradoxical, but sticking with old systems is often more expensive than modernization. The hidden costs can be seen in
- inefficient processes that consume resources unnecessarily,
- rising operating costs and
- missed market opportunities that jeopardize competitiveness in the long term.
Conclusion: act now!
Banks that hesitate risk being left behind.
Switching to modern, integrated software solutions not only enables efficiency gains, but also the opportunity to make business processes fit for the future. Modernizing old company software is not a question of "if", but "when".
Don't wait too long - you may already be paying the hidden costs.
And hand on heart: do you really want to keep working on your "30-year-old car" - or is it time to buy a new one?
We would be happy to advise you and introduce you to our solution. You will not only benefit from our technical expertise: as an implementation partner, we will also provide you with professional support and contribute our experience from comparable projects.
Sources: 1: https://www.sueddeutsche.de/wirtschaft/banken-veraltete-it-pannen-1.4529923