I remember many years ago when 8-track players became popular in my neighborhood. Although audiophiles will probably cringe when I say this, they had several advantages over my old record player. They were more portable and resistant to damage, and you could change songs just by pushing a button. Perhaps most important, you could listen to the same tape in your house and your car. My, how our music players have changed over the years—from Sony Walkmans and CDs to iPods and streaming music on our smart phones and wearable devices.
About the same time as 8-track players were introduced, many US bank core deposit systems were being developed. It is important to consider just how different the banking environment was back in the 1960s:
- Interest rates were still regulated
- Interstate banking was basically non-existent
- Glass-Steagall was still in effect
- Phones were associated with addresses, not people
- Customers did not have a computer, much less a smart phone
- The cloud was something that produced rain
- COBOL was considered a leading-edge programming language
Most of us have upgraded our music systems many times since the 1960s, but many banks are still using the same foundation to support core banking. For years, the industry consensus has been that the risk of upgrading these core platforms is greater than the risk of doing nothing.
NTT DATA Consulting recently surveyed more than 1,000 consumers and 100-plus bankers to see if that argument still holds. We found that the balance of risk has shifted.
Consumer expectations have risen dramatically in the past 15 years. Our survey shows that:
- 46% of consumers are already experimenting with an alternative payment provider
- 47% are willing to consider a large retailer (e.g., Walmart or Target) as their banking services provider
- 1 in 3 said they would be willing to switch banks for one with a better online or mobile experience
- 1 in 4 said they would be willing to consider a new primary bank if it was more “tech-savvy”
Most banks are still wrangling with the past instead of moving forward with their customers. The bankers in our survey said they are planning to conduct an assessment of their core deposit systems within the next three years (80%). However, only 15% thought they would start a major core upgrade. Although two in three bankers has significant challenges with their existing core systems and 75% expect major benefits in an upgrade, the path to modernization seems daunting.
This mindset ignores recent advances in large-scale system upgrades. The ability to isolate the core from bank services and proven techniques for managing large-scale conversions have mitigated the risk of a core system upgrade. Case in point: a top-four US bank successfully conducted a massive card platform conversion (the largest in industry history, in fact) while maintaining service levels for 40+ million customers. And it is now in much better shape to offer those customers more innovative products and profitable offerings.
Banks spend huge amounts of money keeping legacy core systems current with regulations and trying to play catch-up with FinTech disruptors in the marketplace. To a large degree, these core systems have become an anchor banks must drag around as they work to provide the services being demanded by 21st century customers.
Bottom line: it is time to upgrade these platform. No consumer would try to stream music into an 8-track player, and no bank should continue to think it can compete in the digital world with core systems that are older than the Rolling Stones.
If you are interested in receiving a copy of the full report once it is released in June, visit: http://americas.nttdata.com/Services/Services/Consulting/research.aspx.