Why Financial Institutions Should Update their Legacy System

The pace of change has reached breakneck speed. Unfortunately, it’s leaving existing technologies in its wake—which is creating a huge problem.

Large financial institutions can’t afford to rip up the playbook every time a new technology is introduced. They simply patch up their existing solutions and carry on, but this is unsustainable and unscalable. These old systems that they rely on (known as legacy systems) are no longer fit for the current digital world. 

1. PwC has identified a handful of key priorities that financial institutions must recognise to succeed in this increasingly digitised landscape, which includes simplifying their legacy systems and updating their operating platforms.
2. In Adobe’s ‘Digital Trends: Financial Services & Insurance in Focus’, 53% of respondents declared that “modernising of core systems/technology stack integration” was one of their core areas of focus for digital transformation.
3. Many financial institutions are still using legacy systems that were first created over 30 years ago.

Accountants no longer use abacuses (or increasingly, even calculators). So why do financial institutions continue to operate with outdated technology?

This blog post will outline the 5 reasons why legacy systems create more harm than good before exploring how financial institutions can implement cloud-native alternatives.

5 reasons why financial institutions should update their legacy systems

According to Gartner, a legacy system can be defined as: “An information system that may be based on outdated technologies, but is critical to day-to-day operations.” There’s a conflict here. Legacy systems are usually so important that the entire company relies upon them—yet they’re so outdated that they actively harm an organisation’s ability to grow and innovate.

Let’s dig into 5 specific reasons why financial institutions must move away from legacy systems as quickly as possible.

1. Expensive to maintain

Legacy systems weren’t built with today’s needs in mind. They’re often not fit for the task and require significant maintenance—in fact, it has been suggested that the US government spent about 80% of its 2019 budget on legacy system maintenance alone. Companies persist with legacy systems in anticipation of saving money and avoiding hassle. However, this strategy usually costs them more money and effort in the long run.

2. Lacklustre security

Legacy systems leave companies vulnerable to cybersecurity attacks. This is hardly surprising—they were created before cyberattacks were as advanced as they currently are. Unfortunately, organisations have not yet paid much attention to this issue. Back in 2020, Windows warned its users to migrate from Windows 7 to Windows 10 due to potential security risks, yet Windows 7 still has a 19% market share.

3. Poor performance

It’s crucial that financial institutions regularly implement new, innovative technologies. This is the only way that they can keep up with ever-changing consumer demands and rise above the competition (specifically, tech-savvy FinTechs). But it’s almost impossible and unscalable to leverage the power of artificial intelligence (AI), machine learning (ML), or advanced data analytics with legacy systems.

4. Non-user-friendly interface

Consumers have become accustomed to using user-friendly tools and interfaces. Having a brilliant customer experience (CX) is now a genuine competitive advantage. Thus, it’s important that companies get it right. Unfortunately, with an outdated and non-user-friendly platform, financial institutions are forced to offer rigid, inflexible and poor customer experiences. This harms consumers’ perceptions of these brands—and might even lead them to start looking elsewhere.

5. Don’t play well with other tools

Not only do legacy systems lack mobile and web compatibility, but they also make it hard for institutions to integrate with other pieces of enterprise software. This harms organisation-wide growth and keeps financial institutions playing catch-up with their more innovative competitors.

The first step on your journey

Perhaps you’re not quite ready to move away from your legacy system just yet. That’s understandable—it would be a huge project requiring plenty of time, effort, and resources. It might even result in downtime.

However, if you want to begin making the most out of today’s technologies, there’s one thing you can do: implement a cloud-native piece of software. For instance, if you’re a collections department then you can enjoy the convenience and scalability of a piece of cloud-native software while also using your current legacy system.

But don’t simply jump in and implement any modern software that you come across. Instead, you should thoroughly analyse any solution before signing on the dotted line.

What questions should collections departments ask before software implementation?

You need to make sure that your legacy system and your cloud-native software will work together as intended. Ask the following questions before purchasing any new enterprise collections software:

Q1: Can it build on top of the current legacy system?

This is a no-brainer—you need to make sure that the two systems will actually talk to each other and that all data can be transferred without any issues. If those systems are incompatible, you’ll need to find another alternative or vendor.

Q2: Can we easily customise dunning strategies for different segments?

There’s no point investing in a cloud-native piece of collections software if you lack the freedom to create tailored dunning strategies, or don’t have complete control over them. Look for tools that let you customise your approach for each segment. This will lead to the greatest results, allowing you to adjust your strategies according to each individual customer’s behaviour and preferences.

Q3: Does the software work with a wide range of payment providers?

You need to make it as easy as possible for past-due customers to pay you back. This means you have to offer up a variety of payment options through different partners—whether these are simple credit/debit card transactions, instalment plans, or through other online payment providers (like PayPal).

Q4: Does the vendor have a complete security protocol?

We’re creating more data than ever before—and it has never been at such great risk. Financial institutions must partner up with collections management software providers that put data security at the heart of everything they do. Ensure that your vendor has a complete data security protocol or else you might risk losing valuable and sensitive customer information.

Q5: Does it offer no-code capabilities?

With no-code functionality, collections employees can design tailored dunning messaging themselves and implement necessary changes right away. This will optimise your overall collections performance and recovery rate.

Q6: Does it allow for self-service repayments?

Consumers want agency over proceedings—especially when it relates to their own finances. By offering up self-service repayment landing pages, past-due customers can take control over their own debt. They can decide when to pay up, how much to repay, or whether they want to set up an instalment plan. This increases the likelihood that they will engage in the dunning process.

Q7: Is this an all-in-one platform?

All-in-one platforms allow you to manage your entire collections operation from one single place. Not only will different tools make it harder for agents to see past performance, analyse key results, and come up with better approaches going forward, but you might also find that other tools don’t integrate with your legacy system whatsoever. Financial institutions therefore need a collections software that integrates data from different platforms into one single place.

There’s no time to waste

A few years ago, Justin Trudeau remarked: “The pace of change has never been this fast, yet it will never be this slow again”. Financial institutions are grappling with a complex array of challenges: increasing consumer expectations, the emerging threat of innovative FinTechs, customer behaviour changes due to COVID pandemic, and the emergence of a digital-first society.

And as things stand, they’re fighting these challenges with one hand tied behind their backs. Legacy systems inhibit financial institutions, harming their ability to provide safe and satisfying customer experiences. Financial institutions must leverage the power of cloud-native software to at least keep up with their more technologically advanced competitors.

To find out more about receeve’s future-proofed, cloud-native collections management solution, have a chat with a member of our team today.