Farewell Waterfalls – Modern Banks are Setting Their Eyes on Modular Modernization 

With their complex web of legacy IT systems, banks are now confronted with rising costs and stifled innovation. Samlink’s CTO, Linh Kuivanen, champions a modular approach, emphasizing its potential for flexibility and swift value delivery, as the solution to modern banking’s paramount challenges.

The IT systems of the eighties, and even before, were designed primarily based on the needs of that era. The business landscape then was markedly different from today’s, and banks mainly focused on their internal needs. Mainframe-based solutions were developed to automate existing processes.

During his career, Samlink’s CTO Linh Kuivanen has witnessed the evolution of IT in banking – and a multitude of modernization projects from success stories to failure horrors.  

– At that time, there were no off-the-shelf solutions available. The legacy systems that many banks still operate on today were completely custom-built. As businesses evolved and new needs or products emerged, IT had to develop additional layers to cater to these new requirements, leading to a conglomerate of systems, he notes.  

Today, many banks recognize the pressing need to modernize their entire IT infrastructure. The upkeep of legacy systems is becoming prohibitively expensive, and their lack of support for today’s business requirements impedes innovation. However, many shy away from modernization. The complexity of old systems and fear of failure lingers especially in the minds of people with past negative experiences from ill-suited, ready-made software. 

– The primary concern isn’t about choosing between buying or building but ensuring the success of such an expansive transformation. Regardless of the system’s origin, a modular approach not only mitigates risks but also delivers immediate value to the business, Kuivanen emphasizes.

Modular approach offers flexibility and immediate value

The waterfall approach used by many banks over the years to overhaul an intricate web of IT systems can take between 3 to 5 years. This ties up vast company resources, expertise, and capabilities in a singular project. While this method allows banks to rebuild their entire IT and optimize its operations, it’s a colossal endeavor with a high propensity for failure. 

– About five years ago, such core renewals were the norm. However, banks now understand that development cycles should be counted in months or even weeks, not years. The most significant challenge isn’t in technology but the people. Locking in business-critical expertise for extended periods diverts it from other crucial areas, Kuivanen explains. 

Instead of viewing modernization purely as an IT-driven initiative, it should be perceived as a broader business transformation. By selecting modules piecemeal, focusing on one business area or system layer at a time, banks can address their most pressing concerns or inefficiencies. This strategy enables the swift deployment of new solutions, thereby delivering immediate value. 

– Rapid update cycles, heightened competition, and the ever-evolving digital landscape all advocate for a modular approach over large-scale, long-duration projects. A lot can change in a few years, but a modular strategy simplifies adapting to new demands and prerequisites, Kuivanen remarks. 

Monoliths fall with their builders

If outdated technology is a significant impetus for banks to update their IT, the monolithic structure of legacy solutions often poses its own set of challenges. Dissecting old systems and grasping their lineage demands a deep understanding of business, IT, and architectural intricacies. Moreover, the individuals who initially designed these solutions decades ago are nearing retirement.

– There’s a looming crisis with continuity, as the expertise to maintain these legacy systems diminishes with retirements. The time to modernize is now, and partnering with someone who understands both the history and the core business of banking is vital for success, Kuivanen concludes.

Looking for more information on how to succeed with your digital transformation? Check our five key considerations when buying IT solutions in banking.