Why FinTech innovation doesn’t need to be held back by legacy systems
Legacy systems are often cited as one of the biggest blockers of FinTech adoption, but this is not necessarily the case. Julian Wells, director at Whitecap Consulting, explains more.
Technology and consumer expectations have both evolved considerably over recent years, with the advent of cloud and app based FinTech solutions providing new and exciting ways to reinvent the way key processes are delivered. Fast decision-making and tighter security requirements, based on modern technologies, are now the standard.
The technology at the core of most established financial institutions is old and outdated and although functionally resilient, legacy core systems often lack the flexibility required to deliver the customer experiences consumers have come to expect in the digital age, but it can be challenging to implement new technology into legacy environments. Despite these challenges, there is a widely accepted requirement for financial services firms to enhance digital capability to meet customer needs and deliver operational efficiencies, and the FinTech sector is finding ways to provide help to those organisations, as it is for other established financial services providers.
Legacy systems are a widely acknowledged issue, with more than 90% of financial services firms relying on legacy technology in some form. Whitecap recently analysed the long-established building society sector, finding that legacy systems add a significant layer of complexity when looking at future technology plans. However, as the need for speed and flexibility increases, it is becoming more difficult for incumbents labouring under the weight of older, less agile systems to compete against those using technologies such as the cloud and open APIs.
Investing in new technology
Our research found there to be widespread acknowledgment amongst the CEOs of building societies that investment in the modernisation of technology is required, to enable more cost efficient and effective ways of working and to meet the needs of a customer base and distribution partners that are increasingly turning to digital channels.
However, we also found that the key barriers for the sector adopting the latest tech include budget constraints (60%) and legacy systems (57%), suggesting that despite the willing attitude from the sector, the associated risks and required investment are perceived as undesirable by some societies. The risks of making changes to established technology are indeed high, and in February 2020 the FCA stated that technology change was the cause of 24% of high severity customer-facing incidents.
Of course, customers don’t really think about legacy systems, and they are focused on being able to get things done, whether this is accessing information, completing a transaction, or providing an update such as a change of their details.
Because not all FinTech innovations need to be linked with legacy systems, ageing technology does not necessarily need to dictate how workflows are carried out, or require FinTech-enabled processes to be adjusted to fit with old technology. Instead, established financial providers can look at how they can create an IT environment that is able to grow and continuously meet the changing technology landscape, with an increased focus on the consumer experience. This can involve the use of APIs, or the adoption of standalone technology solutions that do not need to be integrated to deliver value.
Some FinTech solutions do not need to be integrated into core systems in order for the benefits to be realised. These types of solutions can be extremely helpful if there is a desire for immediate and light touch ways to access more efficient processes, a situation which may be driven by budget or resource constraints, or simply a pressing need to enhance efficiency and customer experience.
• Data analytics tools – these tools may need a data export from the core system but does not necessarily need API integration. This may mean the data analytics reporting won’t be real-time, but it can still deliver significant benefits.
• Mortgage loan origination systems - these systems can have omni-channel UX, are integrated with a range of providers such as KYC, credit check, broker portals, Open Banking etc – providing a modern digital front end. There may be a manual effort between the origination and servicing, but the digital front end origination system still offers significant benefits.
A specific example is Nivo, which provides a standalone app based service that enables the secure transfer of information and documents via instant messaging. Solutions like Nivo can enable key processes to be completed more efficiently, whilst also increasing the conversion of enquiries into applications and completions.
This can have a significant impact in lending in particular, where the ability to receive secure information quickly and electronically can save crucial hours and days for mortgage applicants, whether they are applying directly or via an intermediary/broker.
By their very nature, FinTech firms innovate and create new ways to deliver financial products, services and processes. Financial services is moving towards a more digital model and established organisations such as banks and building societies need to align their ways of working to fit with the way their customers and key partners (such as mortgage intermediaries) expect to be able to deal with them.
Legacy systems can create challenges to digital change, but should not be viewed as blockers to enhancing customer experience and creating advocacy, whilst also achieving efficiency gains.
Nivo gives you the flexibility to test, iterate, and build automations, without the financial barriers and risks associated with building bespoke technology. Explore our technology and book a demo with the team.