By Venkat Pillay, Founder and CEO at CloudFrame

The digital age of banking could be its golden age. Modern IT infrastructure and systems benefit consumers with greater ease, flexibility, and savings. These improvements also enable financial institutions the ability to create new products and reach traditionally underserved groups.

We’re already seeing the effects of digital transformation in the finance industry, from the rise of embedded finance and open banking to new forms of currency and payment options. But there are still a number of barriers holding some financial services firms back. Chief among them are their legacy IT systems, which can create challenges when pressed into service to support this digital future. These challenges drive reluctance to change and create friction in financial services firms, whose legacy applications have provided decades of benefit and contain the intellectual property (IP) of their IT processes and calculations. Porting those applications to the cloud introduces more concerns, including worries about cybersecurity and anxiousness about risk management and compliance with regulatory frameworks. 

The default stage of “doing nothing” is no longer an option. Suppose incumbents wish to match the agility of the new wave of challenger banks, retain customers, and build loyalty, they need to think strategically about evolving their legacy systems and updating their infrastructure. Many financial institutions are still stuck in their efforts to compete with challengers: application modernization ensures they have the tools they need to build new, innovative products and improve end users’ experience.

Modernization and adapting new infrastructure, including the cloud, offers opportunities in addition to business gains (protecting and increasing market share) and reducing risk (knowledgeable staff and resources). Significant cost savings are associated with reducing the CPU usage of programs (and therefore monthly license charges) through modernizing mainframe application code and running it on zIIP processors. Such savings cannot be ignored as World Bank officials warn the global economy is ‘on a razor’s edge’ and could easily fall into recession.

Since 2020, however, banks have begun to recognize the urgency of modernizing and transforming legacy applications that leverage the benefits of the cloud. According to a global survey of banking executives published last year by Accenture, 82% of respondents said they plan to move more than half of their mainframe workloads to the cloud, with 22% planning to move more than three-quarters. The majority plan to make these changes within two to five years.

Safely shifting to the cloud

Moving mainframe COBOL applications to the cloud can’t happen overnight. Nor should it. In order to manage risk, avoid business disruption, and migrate securely, an incremental strategy should be adopted. Incremental modernization is the way to ensure these needs are met and that the process of updating legacy IT remains on time, on target, and on budget. 

For instance, if an organization wants to embark on a COBOL modernization project, it should start by identifying its most process-intensive mainframe COBOL applications or programs and begin its journey by first tackling those. Often that means moving compute processes to less expensive environments, freeing up IT budgets. Once these applications have been successfully modernized, businesses can move to other areas, using their self-funded modernization approach and the money saved from reduced COBOL costs to fund future work and achieve a flywheel effect of modernization.

Breaking down legacy application modernization into projects with a clear, concise scope allows outcomes to be clearly defined, making success easily measurable and reducing risk as the ‘blast radius’ of change is confined. This strategy also means businesses can start benefiting quickly from their legacy application transformation, and smaller budgets are needed as an incremental approach costs less per project. Put simply, it makes change manageable.

Modernization and transformation are calling the financial sector, and no institution can afford to ignore them. Incumbents, often burdened by legacy technology, must recognize that maintaining relevance demands modernization and transformation to support innovation. Promisingly, there are signs of increasing use of cloud and hybrid cloud implementation and a focus on transformation. Still, this drive to modernize legacy applications commitment must continue if institutions are to thrive in the digital age.

The financial services industry is digitally evolving, but the processes within these firms dictate the pace of change. Incumbents operating on legacy technology are facing friction when trying to build a digital future with the tools and techniques of the past. Strategically modernizing and transforming these legacy applications – as, promisingly, there are increasing signs – will be vital if incumbents are to elevate their offering and match the agility of challenger rivals.

About Author:

Venkat is a Technology Visionary, Strategist, and Serial Entrepreneur, and his background of working with large global financial institutions, including Merrill Lynch (now Bank of America) and Bear Stearns (now JP Morgan Chase), was the catalyst for founding CloudFrame.  

As CEO, Venkat uses his critical thinking and planning skills along with his technical expertise to create innovative approaches to modernizing and transforming solutions that address the issue of moving mission-critical mainframe COBOL applications into maintainable Java.  

About CloudFrame

CloudFrame provides a pathway to digital transformation for large organizations running mission-critical applications on COBOL.  With a range of products, CloudFrame gives their customers automated, incremental, low-risk, and low-cost ways to transform their vital applications into fully maintainable, vendor-independent, cloud-native Java. To learn more about CloudFrame, visit www.CloudFrame.com.