Modernization strikes a delicate balance between the risks of change to banking technology and the perils of inertia when legacy systems and processes are in place for too long. A financial institution’s (FI’s) technology modernization plan sets standards for features and performance based on what’s needed to support the institution’s strategy, current customer persona needs, personas of the target customer as defined in the institution’s strategy, the related risk of doing a modernization of technology, and the risk of not doing it.

In a modernization strategy, legacy systems have a role but aren’t the vehicle for innovation. Customers never touch backend core systems, but modern infrastructure must provide flexibility and futureproofing to support them. This is crucial across all lines of business, but the risks need to be defined and mitigated — and doing nothing or kicking the can down the road is a bigger risk than moving ahead. A modernization strategy built as a migration reduces that risk to bite sized, digestible phases over time.

As we’ve noted, 75% of respondents to our 2023 US Banking Study said they would prefer a phased-migration approach. But a successful modernization plan needs to be specific. To execute a migration, FIs need a comprehensive roadmap supported by a well-thought-out tactical plan to ensure continuity of the business, support customer needs, integrate with existing technology, and have the resources or the partner to support it.

A modern tech stack can be either on-premises or cloud-based depending on the institution’s needs. With an open architecture, FIs can achieve flexible, scalable, and technically resilient infrastructure. This approach accelerates time to market and allows for the most cost-effective launch of new products and services.

Effective risk management during the transition requires meticulous planning, including a thorough assessment of operational risks from legacy systems and processes. This involves evaluating architecture, infrastructure, applications, processes, governance, workflows, and performance, and balancing the risks of implementing changes. Senior management must commit to a long-term modernization strategy and mitigation plan, recognizing that the journey is long, and that many obstacles will draw focus from the ultimate goal.