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The safe way to transform banks' legacy systems

The rapid technological changes we see all around us every day are impacting every industry. Automakers are researching driverless cars, electronics manufacturers are bringing in bigger, better Smart TVs, and even groceries and food delivery startups are going more and more hyperlocal. Every business is being pushed towards newer ways of doing business because of the breakneck speed of technological innovations. Banking is no different. The legacy systems that have been followed for decades are no longer good enough for today’s demanding consumer. Let us look at the impact of technology on the legacy systems of banks in a little more detail.



The Need to Transform


People want a cab to reach their address within minutes of their booking a cab. Food must be delivered within 30 minutes. Groceries shouldn’t take more than a few hours. All of these are examples of how much more demanding the customer has become today. Banking is no different. The earlier mode of delivery and the pace of servicing customer requirements is no longer acceptable to customers. Banks, for example, can no longer take days to assess a loan application. Well, technically they can if they want to, but the customer would have moved on to a more agile competitor by then. That is why banks are facing huge pressure to overhaul their legacy systems and provide a much better user experience to their customers. While doing this, though, banks also need to ensure that the due diligence which every banker must do is woven into the client delivery system.


An Example of Disruption


Let us try to understand this development with a specific example related to banking. For decades, all banks have grappled with the problem of their advances going bad because people failed to repay their loans on time or even defaulted. They have had to put in place a legal recovery solution mechanism to ensure that the losses to the bank due to such nonperforming assets could be minimized. Traditionally, this used to be done by banks going through their ledgers once a quarter and putting together a list of people who had defaulted and contacting them for repayment. You should note that we say ‘defaulted’ here, not ‘about to default’, which means preemptive action was almost nonexistent. But today banks are putting in place systems to automate timely warnings to both bank and client, calling out potential default long before they actually start to occur, and automating the recovery calls to clients. This change is really disruption the way banks are now approaching their NPA control and debt recovery activities.


The Safe Way


One way banks could put in place the new mechanisms would be to throw out the existing IT infrastructure and put in place the new one. But the sheer volume of banking transactions every day and the need to preserve the security of depositors’ money would make this a logistical nightmare. The better way is to keep the core system unchanged, and on top of it install a system of enablement.

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