What Credit Unions can learn from the banking industry
The time for Cloud is now
Ask any Credit Union CEO or IT Manager and they will tell you that the financial services industry is one of the biggest spenders on IT. You will probably not be surprised at that fact. However, what may surprise you, is that the majority of this spend is on maintenance activities required to keep crippled, ageing legacy systems operational.
It is estimated that seventy-five per cent of the IT budgets of banks are expended in just maintaining existing systems. This means that identifying and implementing solutions to contain the maintenance cost of legacy systems is a vast requirement for many organizations.
So what is a legacy system? A legacy system is a system that is business-critical and demonstrates one or more of the following additional characteristics: inadequate data management, old age, ancient languages, poorly written or no documentation, a degraded and degrading structure, limited support, a chance to meet business needs, increasing maintenance costs, and the lack of the required architecture to evolve.
This was true of the Royal Bank of Scotland’s €71bn acquisition of ABN Amro in 2012 – outdated legacy systems failed to integrate properly and RBS’s systems seized up, freezing thousands of customers out of their accounts and leaving the bank with a backlog of 100m unprocessed transactions.
The advantage that start-up and challenger banks now have is that they can launch with off-the shelf Cloud Software, Service as a Software (SaaS), private Cloud, Public Cloud or a combination of the two – Hybrid Cloud.
The banks failed to invest in tech when they had the money – now they don’t. The 2008 financial crisis took any surplus out of their budgets and the COVID-19 crisis has just made this problem much worse. However, the crunch time is rapidly approaching and speedy solutions must be found. Challenger banks are beginning to make inroads as customers, particularly younger ones, are becoming frustrated with the limited number of Application Programming Interfaces (APIs) that banks with legacy systems can utilize.
Those banks which expanded via acquisition ironically now have the biggest challenges due to their inability to integrate multiple IT systems. They face a dilemma – carry on spending large amounts of money to inhouse staff who’s job is a high-tech version of applying increasing amounts of sticking-plaster to prevent collapse or move to entirely new core-banking systems.
While the financial services industry is one of the biggest spenders on technology, it is wasting vast amounts which could be spent, if they only had newer systems, providing their customers with new products to make their lives easier.
Credit Union leaders increasingly recognize that Cloud is more than a technology – it is a practical and less-expensive for them and other financial services firms to store data and applications and access advanced software applications via the internet. And as long as the process of moving is done skillfully the old legacy systems can me migrated with ease.
One of the most significant benefits of the cloud is its potential to help Credit Unions reduce core costs, particularly those associated with delivering new solutions, as well as overall operating costs. This is due in part to the fact it removes the cost of the upgrade cycle that comes with physical infrastructure.
With on-premise IT models giving institutions complete control and internal security regulation over data, banks were hesitant to adopt cloud, because of the lack of absolute control and uncertainty regarding third party security procedures and mechanisms. However even the regulators are now realizing that cloud offers a way out of many bank and credit union upgrade problems and are relaxing their grip as private and public providers demonstrate that their cloud-native solutions make banking easier, it also makes their IT systems more robust, secure and innovative.
The time for Cloud is now. Talk to us in Temenos on how we offer a fully integrated Credit Union solution running in the Microsoft Azure Cloud from right here in Ireland.