Smart phasing – the key to financial services modernization

Even today, analysts estimate that more than 65% of the banking and insurance business is entirely dependent on mainframe technologies. However, competitive and regulatory pressures, along with evolving customer expectations, require banks and insurers to embrace digital technologies and become more data-driven. In this light, the mainframe is seen not only as costly but also as a critical hurdle to agility and digital transformation.

Over the last ten years, IT departments in financial institutions have launched several initiatives to cope with mainframe dependency: negotiation with IT providers (mainframe and software vendors), rationalization and consolidation, deployment of agile methodologies (DevOps), etc. Some transformation programs created the ability to rehost applications to less expensive platforms. Unfortunately, those initiatives were mainly focused on cost-cutting and did not add incremental value to the various lines of business.

• How can you implement instant money transfers if your account management system is based on nightly batches?
  

Modern architectures built on powerful scalable infrastructures can now easily support thousands of simultaneous transactions including back-office controls or treatments of data that were previously performed in batch mode when using mainframes. This opens spectacular possibilities in real-time processing of data as well as immersive customer experiences.

• How can you serve and integrate a wide ecosystem of partner-based and white label services via open, API-based, and secure platforms, when your application landscape is monolithic and siloed?
  

At application level, the microservices revolution allows delivery of the application’s overall functionality by assembling independent components (the microservices) to provide one single function that can be addressed (including data sharing) by any internal or external services. This is the first step to building open banking and insurance platforms.

It is time to move on, and every financial institution should engage in a global modernization program aimed at building new and agile IT (at the core, and not only at the edge).

Financial institutions must extract the full benefits of cloud technologies such as flexibility, scalability, pay-per-use and innovative services, leveraging the huge amount of data each bank or insurer is managing.

Mainframe-to-cloud and data modernization are the basis of digital transformation in financial services as associated technologies have diversified and matured. Examples include application portfolio assessment and migration methodologies, cloud-native application development frameworks, platform as a service, financial services-compliant public cloud services, security by design, and many more.

So, the question is no longer “why?” but rather “how.”

How to change the engine of the plane when flying?

The analogy of a financial services modernization program with the idea of changing a plane’s engine mid-flight is relevant. Such initiatives are long (from four to eight years) and imply the co-existence of legacy systems and newly modernized cloud-native applications for several years. It’s important to develop an agile program plan, and for each iteration a detailed roadmap. This can help to limit risks and costs, make the migration as transparent for users and customers as possible, and bring immediate value to the business on some processes while still living with non-modernized ones.

To build this roadmap, one should consider the global value chain and discover hotspots along the value stream that negatively impact results. It’s important to identify which domain(s) will benefit from the modernization (revenue generation, customer retention, etc.) and define the priorities of the modernization program based on such a business assessment.

With these considerations, the organization should arrive at a clear prioritization and order of the business functions to be modernized, and then the associated applications and platforms. Such phasing is key as it will not only support traditional management of the project (risk, scope, quality and timing) but also mainly it will guarantee the concurrent operation of the legacy systems and the modernized applications throughout the program.

Our vision here at Atos is that transformation value supersedes infrastructure savings. The main driver when elaborating the roadmap should be the business, which means priorities like addressing a new service, generating new revenue streams and coping with weaknesses in the existing value chain. Starting with key impediments and blockers will generate quick gains in the value chain and ensure a positive and sustainable transformation program.

Lean and agile methodologies such as the Scaled Agile Framework (SAFe) should be adopted to guarantee that the entire organization (not just IT) is engaged in continually and proactively delivering innovative business solutions. This will allow organization of Agile Release Trains around the flow of value and ensure an incremental and de-risked transformation.

There are no two similar plans!

Every bank and insurer’s requirement, situation and need are unique. Consequently, there are never two similar plans. Therefore, the modernization program should be thoroughly designed in the early phases in a business-led, iterative and incremental approach.

For example, the analysis of the entire value chain of a global bank can lead to a detailed assessment of the banking system architecture. The assessment allows the identification of the domains to be modernized first (e.g., customer management, payments, accounting), leading to the development of a detailed roadmap with successive functional modernization phases.

But a per-customer migration of this B2B financial institution may be more appropriate to minimize risks and accelerate business and financial benefits — thus funding the next steps of the modernization program.

Exit now

Now is the perfect time to start exiting the mainframe. Technologies are mature, powerful financial industry-specific solutions are available, and the entire IT ecosystem (from consultancy and system integrators all the way to hyperscalers) is well established and ready to be leveraged.

Thanks to a smart phasing, it is now possible to limit risks and guarantee the success of exit-mainframe initiatives, while freeing up time to plan for the significant benefits of modernized digital services. That’s the power of new data architectures and cloud-native applications.

Topics

Industry insights
Digital Transformation
Financial Services & Insurance
Cloud