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How and Why to Modernize Legacy Systems in Banking

Mansha Kapoor
July 12, 2022

Banking is as old as currencies and came into existence as part of a functional financial system. Banks played a significant role in facilitating trade, distributing wealth, and taxation, providing hoarding facilities for the rich to stash away their money in strong boxes. So core banking came about, straddling essential financial services such as payments, loans, mortgages, and accounts.

The four fundamental pillars determine the speed and reliability of processes, setting the turn-around time to fulfill customer demand. If these pillars are not backed by obsolete technology or not in step with the fintech of the current times, customer satisfaction and product innovation could be a significant struggle. For example, banks function on COBOL, a computer language that resists seamless integration with current agile financial software solutions. 

What are Legacy core banking systems?

Legacy-core banking systems are outdated and archaic, sometimes more than 30 years old. Based on a mainframe, these platforms support a bank's back-end operations across core functions like account opening, account setup, deposit, transaction, and loan processing. They have limited ability to interface with modern fintech, reducing the bank's ability to enhance customer satisfaction and interaction. 

But these banks also resist implementing the latest technologies even at the risk of losing customers. It is estimated that almost $3 trillion is being handled by legacy banks with COBOL systems daily. This gigantic figure increases resistance to change and does not want any disruption in their workflow and vital operations. In turn, they risk an evolutionary dead-end and a possible demise for the new entrants are the banks with the latest fintech solutions that manage complex payment ecosystems, risk compliances, third-party collaborations, and regulatory norms, not to mention geographical diversification. 

The legacy core system is synonymous with traditional banks. They have an established back-end operation in place. From the teller to the clerk who approves the signature on the cheque, they know the algorithm for supporting a withdrawal. They are equipped to function and exist on the internet with the latest software for digitalization. 

How are legacy core banking systems relevant today?

The pandemic necessitated implementing modern fintech solutions for the customer approach and expectations desired more than hitherto given. Increased digitalization demands tighter security at both ends - customer's as well as that of the bank. 

Today, when customers want to open an account, they want all the formalities done instantly and their account operational within that hour. Asking them to wait for x-number of days does not go well with them and the bank’s image. 

The traditional bank might show their spotless past and copper bottom delivery as means to customer retention, but their tardy operations erode customer satisfaction. And a prospective account holder is lost.

Legacy/traditional banks cannot continue to sit in their comfort zone of past technologies. Their healthy balance sheets and future growth depend hugely on the speed of their transactions. And the execution of customer expectations, in turn, piggybacks on the up-gradation of banking technology. 

Therefore it comes about legacy banks can no longer function in COBOL-like scenarios. They need robust technological infrastructure to work across geographical and financial boundaries, set up third-party networks, create new sophisticated products, and provide customer security. 

Modernizing Legacy Banking Systems

Legacy banking systems can become compatible with modern systems with modern application programming interfaces (APIs), cloud computing, data analytics, artificial intelligence, digital twins, machine learning, or data science.  

This process of 'Mainstreamification' or Modernization requires the legacy bank to work through various steps of planning, execution and selecting an information technology partner. The bank will face challenges when upgrading its old timer technology to a new integrative fintech.

It is expensive to overhaul the entire system and start afresh, especially in the licenses, hardware, data migration, and implementation. The investment may not show immediate returns for a time, which may deter the project. The way around it is to parcel out the project and implement it in phases. 

The downtime should be planned such that business-critical procedures are hurt the least. Core platforms should be integrated with new technologies, foremost.

Data migration is complex and financially draining, and a bank's data runs into terabytes and runs the risk of a security breach. Therefore, it must be done in a very planned way so that any emergency can be handled smoothly.

It is seen that users of legacy systems do not quickly move to new systems. A blanket employee inclusion in the project will smoothen matters.

The new system, before being implemented, should be analyzed vis-a-vis business goals. Its architecture and code base should be evaluated such that the look and feel of the solution are evident right from the beginning.

The aligned solution should be such to combine customer satisfaction, business agility, risk management, and cost savings.


A reputed mobile technology stack should be applied to meet the business objectives.

Best practices of software engineering across the entire IT department should be adopted. Comprehensive project documentation, readable code, and component architecture will ensure the maintainability and scalability of the upgraded system.

All employees should be trained in the upgraded software, so they do not face or commit glitches. Their handholding should be done for a stipulated time to ensure the smooth running of the system. Timely upgrades of the system are an absolute must so that this system does not go the old way.

At CognitiveClouds, we have been entrusted with a number of projects enhancing the banking experience for global customers of international banks. We understand how important it is for banks to be up-to-date with the latest software trends, in order to enhance their customer experience and take it to the next level.

Click here to get in touch with our team of experts, to discuss how we can help you boost your customer engagement with the latest applications in the market. 

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Mansha Kapoor