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  5. Celent Model Bank Awards 2017: The Legacy Perspective

Celent Model Bank Awards 2017: The Legacy Perspective

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23 March 2017
James O'Neill

We’re less than two weeks away from this year’s Insight & Innovation Day!

Once again my presentation of the Model Bank Awards for Legacy Transformation will serve as the only barrier to the much anticipated announcement of Celent’s Model Bank of the Year Award for 2017. This is my third year speaking at our Insight & Innovation Day conference, and this is my third year “bringing up the rear”. I’m not sure if this status reflects on the critical importance of Legacy Transformation, in the way that “Actress in a Leading Role” presages the much anticipated “Best Picture” Award at the Oscars. More likely, this simply reflects the reality that most banks consider Legacy IT as boringly reliable and not very…well… sexy.

Legacy IT is a term that most bankers associate with mainframe-based core banking systems (CBS) – systems that have never seemed to get much respect. Most bankers place Legacy IT on the “pay no mind” list, thinking about CBS platforms as much as they ponder the Ethernet cables traversing the space in the ceiling above their cubicles. This pay-no-mind approach seems to work well, until the day when the bank experiences a massive payments screw-up, or a systems availability issue arises, triggering a Greek chorus of blame from the press and industry pundits -- "damn those aging back-office systems"!

Given my tempered expectations, I was astonished at the number and diversity of very interesting projects that were nominated for Model Bank Awards for 2017. If this year’s nominations are any indication of what’s going on in the market, it appears that banks are finally looking to transform legacy IT from something they simply have to live with to something from which they can create competitive advantage. Of course, CBS platforms will continue working in the background to support the bank’s strategic mission – the perennial nominee for “Best Supporting Actor/Actress” rather than “Best Actor/Actress” – but it’s also very clear that innovations like real-time payments and Open Banking will only go as far as the bank’s back-office systems will carry them.

My review of the various nominations we received this year reflects a shift in how large FIs around the globe are viewing CBS transformation: while traditionally CBS renewal was viewed as addressing a “problem to be fixed”, increasingly it’s becoming an “opportunity to be seized”. The old view of CBS projects was driven by the simplistic notion sense that COBOL was bad simply because it was old. To the extent that a bank’s motivation was based simply replacing the old for the sake of modernity, it explains why many CBS renewal projects have been abandoned or never attempted at all. I’d personally prefer my bank to be running on an old and well-maintained system than an new and poorly designed banking system.

The important nuance here is that if a bank cannot achieve internal consensus around the issue of legacy CBS, it’s relatively easy to continue to kick the can down the road – which is what many large and strategically important global banks continue to do. On the other hand, the banks included in our group of Model Bank Award nominees view CBS renewal through a different lens, one that considers CBS renewal as an enabler of operational agility, a catalyst of back-office efficiency, and other important positive benefits. Thus, few references were made this year to "old versus new", but rather to things like “delivering banking services anytime, anywhere, at scale and using technology to relentlessly drive efficiency”, as one Model Bank Award nominee articulated the emerging opportunity for CBS renewal.

Reflecting the diversity of the Model Bank Award nominations we received for Legacy Transformation, this year we will be making three separate awards for innovative projects that are powered by innovative CBS platform implementations:

  • Legacy Transformation: This Award winner exemplified the long-term approach that CBS transformation demands, particularly for the large banks, and demonstrated that legacy transformation is not a sprint measured on a quarter-by-quarter basis but a marathon that takes many years to take root.
  • Banking in the Cloud: Casting aside conventional doubts and concerns about the security and regulatory acceptability of cloud services, this Award winner built its entire stack of banking services wholly in the cloud, and thus serves as a model for other banks to observe and emulate in time.
  • Financial Inclusion: CBS transformation projects are typically aimed at increasing organizational agility and reducing back-office IT costs, however this Award winner has demonstrated the social impact of building modern IT platforms in reaching the unbanked with a growing array of modern banking systems.

I’m looking forward to presenting these very worthy winners with their Model Bank Awards, while also sharing my observations regarding how the conventional view of Legacy Transformation needs to evolve along with all of our thoughts and preconceptions regarding the importance and nature of innovation in banking.

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