Traditional banks face significant challenges from digital and online-first competitors, but by taking a wide-angle view of their own capabilities, keeping the pace is possible, writes Roy Zakka, CEO and Founder of Layer (pictured)

Despite the slew of reports reminding the sector that there is no priority more urgent, traditional banks are understandably hesitant to embark on a full-scale digital transformation project. 

It’s easy to see why. Most are burdened by lagging legacy core systems, while investors and executive leadership are lukewarm about the prospect of multi-year digitisation projects. Factor in the upfront investment, which can be as high as 10 percent of annual expenditure, a lack of IT resources, and the relentless demands of compliance, and you have a scenario where digital transformation remains a buzz phrase, not a plan. 

Now, I’m not arguing for the sweeping replacement of traditional branch banking by a twinkling array of mobile apps. The right approach to digital transformation may actually restore a sense of purpose to brick and mortar banking. That’s an urgently needed solution to the current rapid demise in physical banking since the pandemic, where even the big banks are struggling to find a role for their branches and trying to compete with neobanks by going digital themselves. That approach ignores the fact that up to 22% of customers still prefer to bank in-branch, but explains why one US study has already predicted that bank branches could be extinct by 2034

I believe that true digital transformation is about future-proofing a business, not just digitising existing processes. That’s a leap into the unknown for banks already constrained by a traditionally risk-conscious culture, but it doesn’t have to be. 

The options for upgrading the core

Digitizing core systems is a major hurdle in any transformation project. The risks are too high when the back end is likely to be a bespoke, heavily customized system designed in a language from a different era. Up to 43% of traditional bank’s systems are built in COBOL, and many were first deployed in the pre-internet age. 

These core legacy platforms were never designed to give an end-to-end view of data, or a Single Customer View – something digital-first banks are designed to do from day one. Data is siloed, making it difficult to extract insight and release value. In defence of core systems, they are extremely reliable at what they were designed to do, but that strength is a weakness

when it comes to adapting to a mobile, digital market. 

That leaves banks with the following options, involving various degrees of risk and disruption:

  • Migrate code but not functionality, essentially upgrading to a newer, more robust version of a database  
  • Integrate middleware without changing the backend configuration, essentially patching over the shortfall in backend functionality using APIs.
  • Modernize the codebase, eg. translating COBOL to Java without changing essential functionality. This at least opens up the potential for cloud-ready functions. Ultimately, however, this is merely dressing up the front end for a slicker user experience, without addressing any key issues through backend or middleware changes. 
  • Replace the core banking system – this ‘rip and replace’ approach calls for the highest degree of investment and exposes the bank to maximum potential disruption.
  • Augment the core banking system to address the priority needs not covered by the legacy core. This solution offers quick transformation without disrupting essential processes. Ultimately, the augmented platform can become the target destination for the legacy core. 

Overcoming the challenges and embracing digital transformation

Returning to my point about digital transformation and digitisation, the fact is a bank could implement any one of these strategies and still not achieve true digital transformation.

True digital transformation fundamentally changes what a bank is. It changes the purpose of a branch, a mobile app, or even a phone. You need to change each channel from a services channel to a sales, support and advice channel, in which case transformation has to make sure that all those different elements are achievable and integrated on digital services.

In other words, it’s not enough to reskin existing functionality into a mobile app. Instead, there’s the task of supporting the client base in using new digital services, upskilling staff on what they do on a daily basis, and ultimately changing how you operate as a financial services business. That’s a long-term project rather than a short-term challenge.

Getting ready for the future

Through a combination of events, circumstance and changing customer demands, a new age of digital banking is on the horizon, one which is much more than just an online or app service, but a complete rethink of what banking is – from root to branch. 

Banks need not panic. The solution is in small tactical changes that avoid the need for major capital expenditure and disruption, leaning towards cloud-native, open-banking compliant digital platforms that deliver an outstanding customer experience without affecting core transaction processing. 

Roy Zakka is CEO and Founder of Layer, which works with traditional financial institutions to rapidly digitalise their core legacy systems. To learn more, please visit