Is your organisation planning a large-scale transformation exercise in the upcoming financial year? Or perhaps you’re already in the midst of one and have some key milestones looming in FY2025? While high tech modernisation has become the overarching goal for thousands of Australian and New Zealand enterprises of all stripes and sizes in recent times, the financial services sector has been hard at it for the past four decades now, and counting.
Local organisations’ willingness to move with the times – and invest large sums in doing so – has helped them remain in the vanguard, through the PC, internet and mobile computing eras. The ultimate early adopters, local banks and institutions began digitising their operations in the eighties, when IBM mainframes first became a commercially viable option, and they’ve been spending up big ever since.
The figures tell the story. High tech investment by businesses in the banking and investment services space was estimated to have hit $27.3 billion in the 2023 calendar year, according to Gartner. That’s an increase of 7.6 per cent on 2022’s spend.
The legacy challenge: Balancing past Investment with future needs
However, several decades of big budget spending has left financial institutions in possession of a plethora of legacy systems, many of them custom designed and built at great expense with the express object of gaining an edge over the competition.
As a consequence, organisations have embraced a modus operandi that’s the antithesis of flexible and nimble. Multi-year programs of work mean they’re effectively engaged in building tomorrow’s legacy systems – platforms and programs that will need to be replaced at enormous expense, almost as soon as they’re up and running.
Now, as consumers’ changing preferences and behaviours see the continued phase out of bricks and mortar banking – 98.9 per cent of interactions are now taking place via apps online and just 13 per cent of payments are made using cash, according to the Australian Banking Association – boosting their digital capability has become the latest imperative, for large and small financial institutions alike.
In Australia and New Zealand, legacy technology at the major banks poses significant technical risk, requiring substantial investment in core platform upgrades. The drive for simplification is essential, as innovation is hindered by fragmented back-office systems.
Many local small and mid-tier banks, which depend on all-in-one, generic solutions from established providers, encounter distinct but equally limiting challenges. As they seek to accelerate growth, there is increasing awareness that these platforms often lack the flexibility and innovation necessary to meet modern customer expectations, particularly in digital engagement.
Furthermore, rising consolidation in the small to mid-tier banking sector is accelerating modernisation thinking, with banks seeking to maximise the advantages of merged entities by streamlining and enhancing technology to deliver improved digital experiences.
The other big problem with this endless ‘arms race’ approach to ICT investment is that, in today’s times, it misses the mark. That’s because competitive differentiation is no longer achieved solely via product; from having core systems that are marginally faster or fancier than those of your counterparts.
In fact, many core platforms are indistinguishable from one another, irrespective of whether they’ve been bought or built.
Focus on the future
What does set one financial institution apart from another, however, is the way in which it engages with customers and delivers the personalised journeys that anticipate and meet their needs, at every stage and touchpoint.
That’s where relationships are expanded, loyalty is fostered and long-term value is created.
Which is why that’s where institutions with an eye to the future need to focus their systems development efforts. Rather than adding unnecessary and expensive complexity to their already burgeoning tech stacks, they should be looking to simplify their underlying architecture and infrastructure – and directing their energy and attention to developing capabilities and customer journeys that will enable them to stand out from the crowd.
The ultimate aim should be to make it possible – and easy – to pursue a program of continuous, progressive digital improvement and differentiation, at a cost that won’t break the bank. Eschewing big bang overhauls in favour of this more strategic, cost-effective approach involves a change of mindset and method.