FDIC Chairman Jelena McWilliams states, "legacy systems are high risk, technology modernization is top priority"... and she is right

Written by Puja Agrawal Chief Operating Officer of Americas
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On April 14, 2021, FDIC Chairman Jelena McWilliams expressed concern for the banking industry while speaking at a virtual conference hosted by the Consumer Bankers Association. Her frank comments centered on the continued reliance of banks and credit unions on outdated legacy technology, citing what she called “the potential for cumbersome software and outdated internal processes to impede bank business and even threaten the sector’s resilience.”i

Recent research by Deloitte also reveals a ticking time bomb waiting for financial institutions that fail to make timely upgrades. According to the consulting firm, too many banking systems and applications have not been modernized to capitalize on the advancements provided by recent technology or application management approachesii.

Without modernizing the core, financial institutions are unable to meet their customers’ current demands–namely the need for anytime, anywhere consumer access—or the requirements of tomorrow as consumer/business expectations lead toward a more varied and connected landscape of financial and non-financial products.

Beyond the failure to meet customer needs, banks and credit unions are also losing out on operational efficiencies by holding onto legacy technology. While providing a more efficient and pleasurable user experience, modern advancements in banking systems also optimize operational performance, thereby reducing substantial costs.

In the end, meeting customer expectations and improving internal operations become a single issue. Financial institutions that fail to modernize legacy technology often attempt to improve customer centricity through front-end applications. This approach has a higher propensity for failure as any improvements using automation or other technology enhancements only slow the downstream processes that still rely on manual interventions.

Instead of the “band-aid” approach, banks and credit unions require a solution that can draw on the innate advantages of the core, mainly the reams of data contained therein, while providing the operational efficiencies that will benefit both financial institutions and their customers as the world moves increasingly toward more digital.iii

Redefining the modern financial institution with technology

Dramatic changes are redefining the banking operating model and accelerating the need for modern technology adoption.

All age groups now expect financial institutions to provide online capabilities. Even the older baby boomer generation is getting in on the game, with seventy-nine percent reporting mobile banking as their primary way of engaging with their financesiv. However, online access isn’t the only expectation that consumers have.

Meeting customer experience standards requires a seamless journey across the customer’s or member’s financial landscape, including a full range of products and services. If customers can’t find the products or services they need or experience inconsistencies in service availability across channels, their satisfaction drops dramatically.

This type of environment impacts the financial institution as well. Inconsistent performance decreases revenue-generating opportunities by driving customers away while simultaneously increasing operating costs.

So, whether it’s the rising number of consumers looking for more comprehensive online account origination or the growing number of financial institutions seeking access to revenue-generating opportunities, the answer is the same: a cloud-based, open ecosystem.

By saying goodbye to legacy systems and investing in a cloud-based modern core, financial institutions can connect to an ecosystem of digital offerings, to deliver a seamless end-to-end experience across all realms of the customer’s financial environment. The banking experience becomes easier for the consumer, and financial institutions are able to maximize the value for all participants.

Financial institutions that have invested in cloud-based cores supporting an ecosystem of innovative products have seen up to twenty percent growth in loan portfolios, a two hundred percent increase in payments customers and fifty-five percent growth in net operating profits, to highlight just a few of the benefitsv.

These are proof points that show that Chairman McWilliams’ concerns about outdated technology are founded, but also reveal how modern advancements can be used to guide financial institutions away from the precipice. By adopting modern cores that can accommodate a range of products consumers want to use, financial institutions increase customer and member satisfaction, reach higher revenue milestones through expanded product offerings, and improve operational performance.

i Brendan Pedersen. “FDIC Chief Cites Legacy Systems as ‘No. 1’ Concern for Banks. American Banker, Apr. 14, 2021. Web.
ii “Modernizing Legacy Systems in Banking: How Banks Can Succeed at Core and App Modernization.” Deloitte. Retrieved from:
iii “Addressing the Problems of Legacy Banking Systems.” International Banker, Oct. 26, 2020. Web.
iv “Transformational Banking: A New Model for Community Banks and Credit Unions.” Finastra, 2021. Web.
v “Transformational Banking: A New Model for Community Banks and Credit Unions.” Finastra, 2021. Web.

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