Streamlining the legacy technology landscape in financial services
The financial services sector has one of the most elaborate and complex system landscapes around, and as a result institutions struggle to keep their portfolio up-to-date. Balaji Raghavan, Head of Banking and Financial Services at Tata Consultancy Services, explains how institutions can streamline their legacy technology portfolio.
Establishing positive, mutually beneficial, and even interpersonal vendor relationships will help set organisations apart and ensure that customers are always well-serviced. Although without careful management of these relationships, inefficiencies and unnecessary costs will rapidly start to build.
In the financial services sector, increasing competition from flexible start-ups highlights the importance of businesses ‘breaking the mould’ of traditional partner ecosystems. Siloed numerous vendors are commonplace in the financial services sector, and it’s not unheard of for a single business to have over 100 partners for their technology portfolio alone.
These overly populated vendor portfolios weigh organisations down, with various disparate tools, complicated service management, and swelling technical debt, resulting in wasted time and money. Organisations should look to alleviate these issues with a more streamlined vendor ecosystem, although this doesn’t necessarily mean that financial services should steer away from new solutions or partners. Rather, they should consider technology investments holistically.
Companies must step back and evaluate how their technology ecosystems currently address business processes, with a view to ensure transparency across the stack and maximise customer services, profitability and agility in the market.
Beyond vendor management, it's essential to understand the scope of capabilities to ensure that they can provide the necessary breadth and continuous support through the increasing market volatility and economic turbulence. Regular reviews and a transparent vendor assessment process ensures that businesses can capitalise on market opportunities.
It’s a legacy world for many
According to the Australasian Supply Chain Institute, the number one contingency posing risk to supply chain resiliency for local organisations is ‘reliance on legacy technology’.
This isn’t great news for the financial services sector, as despite some recent trends towards innovation, it’s still dominated by legacy technology vendors and decades-old mainframes. You only need to look at the persistence of COBOL – which is a 60-year-old programming language still used by many major banks for core services – to recognise that the industry has a problem with legacy systems.
Although the challenge extends beyond the infrastructure itself. Bloated legacy vendor networks and a lack of effective management can affect profitability and make it hard to pinpoint issues throughout the supply chain. Additionally, there needs to be a clear differentiation between vendor and partner relationships, as both play an essential yet different role in supporting businesses.
If more traditional financial institutions fail to modernise and streamline their vendor portfolio, they will find themselves slipping behind challengers in terms of innovation. The financial services industry is going through such a rapid pace of disruption, with innovative, cloud first solutions being lapped up by many of the new kids on the block. This presents a challenge for those more traditional institutions stuck in the legacy world.
Traditional banks are finding themselves up against younger competitors that have newer infrastructure and more agile processes. This has a direct impact on the quality of services offered to customers, as major banks are hampered by swelling costs associated with maintaining legacy technology.
The process of assessing current partnerships is an integral part of determining the current state of vendor relationships, highlighting any ecosystem fragmentation and the opportunity for creating more value. Organisations should start to shift their thinking away from product-centric vendors to technology strategists that provide platforms, technologies, and people, which can be also part of a wider ‘Business Process as a Service’ model.
Streamlining the process
There are multiple barriers when it comes to streamlining vendor portfolios, including legacy structures, archaic sourcing strategies and lack of quality data, which is itself driven by insufficient vendor insights. In order to address these challenges, organisations will need to overhaul the way they think about their vendor relationships and audit each business process in terms of how their tech ecosystem caters to it.
This needs to be done extremely carefully, as not any two vendors are the same. The Covid-19 pandemic has mounted a lot of additional pressure on suppliers, as businesses increasingly execute on supply chain strategies that are risk-averse.
Larger companies may have more capacity to bring solutions to clients, due to the depth and breadth of their expertise and resources. By comparison, many smaller players may not be able to deliver the digital transformation that financial institutions require.
Organisations should try and get a 360-degree view of all vendors, both existing and potential, to ensure that they are able to meet your needs. Vendor management systems are beneficial here, as they allow firms to look over existing vendors, while comparing them to other prospects.
The streamlining process can also involve working more closely with vendors in collaborating on solutions, fostering more bilateral communication. In this sense, organisations should go beyond simply employing vendors and start to look for strategic partnerships, with priorities aligned to your needs.
Another consideration is that an organisation’s supply chain increasingly poses a security and privacy risk. Beyond an uptick in supply chain cyber-attacks, regulatory checks and audits are going deeper into a business’ partner network, and vendors need to be aligned as an extension of the business itself.
For all these reasons, financial services organisations should start engaging or re-engaging with vendors on an interpersonal level, inviting them to open conversations as part of the procurement process to discuss where they can add value across your organisation. The result is bilateral, open communication between business and vendors, allowing for better delivery of services to customers.
