“Legacy infrastructure impeding banks’ digital transformation” | Daily News


 

“Legacy infrastructure impeding banks’ digital transformation”

It’s been slightly more than 10 years since the financial crisis of 2008. In this time, the global banking industry has been working in coordination with financial regulators to move the financial system from its precarious position to a safer one, resting on less tenuous ground, Moody’s Investor Services said.

In numerical terms, the global banking ROE had fallen from 15.2% in the pre-economic crisis period to 9% in 2017. It has hovered in a narrow range between 8% and 9% since 2012, which is a clear indication of the industry’s resiliency.

The global Tier 1 capital ratio, a primary indicator of banking-system safety – increased from 9.8% in 2007 to 13.2% in 2017.

Over the years, legacy systems or Core Banking Solutions (CBS) have undergone cycles of change, to meet a wide range of requirements. This has presented financial institutions with multiple challenges concerning updating their existing systems.

FinTech companies around the world have now reached the potential of substituting almost any service from the banking value chain. The financial services landscape is evolving at a rapid pace. The fierce fight for customer experience has left the incumbents reeling and has pushed them to reevaluate their strategies. On the other hand, customer trust is also at stake.

While in some markets, banks are still able to hold on to the trust of their customer base – especially non-millennials; other major regions like China have seen tech invaders making a huge dent in the market.

With wounds of the economic crisis being still fresh, some of the recent data breaches have left customers wanting for a more robust FinServ ecosystem. The flaws in the existing systems – non-transparent and complex payment systems, costly wire transfers and agent-driven remittances, the credit gap after the economic crisis, legacy banking systems – are all building a strong case for the FinTech to take centre stage and lead the innovation to eliminate these flaws.

The cost of compliance and misconduct has made a serious dent in banks’ profitability as they need to expand their compliance headcounts to tackle the regulatory expectations.

The cost of compliance and misconduct has made a serious dent in banks’ profitability as they need to expand their compliance headcounts to tackle the regulatory expectations.

Compliance puts an additional and necessary onus on banks to transform their existing systems. Globally, banks are now shelling out more than $270 billion per year on compliance and regulatory obligations. Large US and European banks are spending as much as $20 billion a year on technology to help them comply with the newly evolving regulations. An estimate indicates that fines levied on banks by US and UK regulators will top $400 billion by 2020.


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