Digital transformation within the financial services is being held back by legacy technology, according to TmaxSoft.
Transforming the IT legacy into new innovative technology is vital for the financial sector to thrive in the new digital economy, adds the mainframe specialist.
To keep pace with the spectacular growth exhibited by the fintech industry, TmaxSoft recommends traditional financial institutions move away from old legacy technology systems and adopt more agile, flexible IT services.
TmaxSoft says this migration is needed to respond to changing consumer habits in real time and offer more personalised customer service.
The financial services sector has seen a significant amount of innovation and disruption in the past decade. This has been driven in part by the rise of fintech companies who have put a significant amount of pressure on the industry by introducing new convenient methods of consumer banking.
According to recent research by McKinsey & Co, traditional banks might lose up to 60% of retail profits to fintech startups. In addition, the study estimated that 40% of their revenue could disappear to fintech companies by 2025.
Carl Davies, CEO of TmaxSoft UK, says: “The traditional financial services industry is now competing with new, agile fintech companies, who have incorporated flexible IT.
“Some within the financial industry have embraced the new digital economy, with strengthened business strategies and opportunities.
“While several banks have introduced services such as mobile banking apps and live customer service chat services to adapt to the changing consumer demand, many still operate with traditional legacy IT systems, which lack the right tools and applications to serve their customers with the flexibility they have come to expect from service providers.
“This, in turn, slows down the pace of innovation. Speed and responsiveness is crucial in an age where real-time customer data and insights can make a major impact on a business's bottom line.”
The mainframe has been the bedrock of most financial services institutions for decades, and while these systems have served their users well during this time, many major banks are finding that they are increasingly failing to provide the functionality banks require.
Not only is it becoming more difficult and more costly to maintain the mainframe as the technology ages, the pool of IT professionals with the specialist skills required is constantly diminishing.
Recent technology developments have allowed fintech startups to start their journeys with a clean state which is not cluttered by old unencumbered investments in IT, which allows them to offer a much more agile, personalised and responsive customer service.
With technologies such as Big Data and artificial intelligence set to disrupt entire markets within the next few years, businesses must move away from legacy mainframes in order to take full advantage of new commercial opportunities.
It is also now no longer the case that moving a mainframe to a new environment is time-consuming or risky. Businesses can re-host their mainframes in a new environment without having to alter their programmes and applications or rewriting millions of lines of code.
Davies says: “The growth we're seeing in the fintech space, and the changing expectations from consumers about how they interact with the financial services industry, presents a challenge for the traditional banks, and the mainframe sits at the heart of this.
“Those that continue to operate on mainframes will find that they do not have the flexibility or agility to develop new applications and offer the innovative and user-friendly services that customers are becoming accustomed to receiving from fintech start-ups.
“If these large financial institutions are to thrive in the era of digital transformation, they must take the initiative and move to more advanced IT environments that are compatible with the new breed of digital services.”
