Legacy Core Systems: The Biggest Obstacle for Bank Digital Strategies

Legacy core banking systems are the biggest barrier to banks implementing a digital channel strategy in the near future, PwC’s CIO Global Banking Survey, which was released earlier this year, found.

The challenge of aging and complex core systems was cited as the most severe issue preventing banks from pursuing a digital strategy both by overseas and domestic banks, according to the survey of 157 banks in Europe, North America and Asia. The regulatory environment was the second biggest barrier most often cited by the U.S. banks in the study.

“Banks are facing a lot of barriers around their legacy environments that is definitely leading to a desire for new cores,” Julien Courbe, the financial sector technology lead partner at PwC, said. “There are technology challenges that you simply cannot circumvent without integration between the core and the online and mobile channels.”

Courbe added that he expects to see a rise in the number of core transformation projects soon as a result of the challenges that legacy core systems are creating for banks.

[See Related: Core Systems Modernization: Risk and Reward]

Among the institutions surveyed, exactly half said they have a digital strategy that aligns with the business strategy of their bank. Another 30% said they have a digital strategy but it doesn’t align with their business goals, and 20% of them said they are still developing a digital strategy.

The major factors preventing alignment between business and IT strategy among the banks surveyed were organizational silos and lack of communication between different parts of the organizations, according to Courbe. “In some cases there was also not enough interest from the board and executive leaders [in the bank’s digital strategy],” he added.

At least half of the banks in the study expect their bank will increase its investment in digital channels (57%), analytics (51%) and IT (50%) over the next two years.

Almost a third (32%) of the respondents said that revenue growth per customer is the top metric they use to measure their return on investment in digital channels. Customer satisfaction scores (21%) and service costs (20%) were the second and third most popular metrics.

And banks are expecting to see revenue growth as a result of their digital channel investments in the near future. Almost two thirds (63%) of those surveyed said they expect to see they expect to see revenue growth of at least 6% over the next two years within the digital channels market.

Those expectations on revenue growth are realistic, Courbe said, as long as banks follow through on their digital strategy and make the necessary investments. “Everybody catches up to the new technologies at some point, but it’s about how quickly can you execute,” he noted.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio