Banks are spending a staggering 70% of their budgets on maintaining outdated legacy systems, with many using an expensive 'patch and upgrade' approach.
According to research from RS2, this strategy is soaking up resources, placing significant strain on IT workers, and holding back digital transformation goals across the sector.
RS2 said the traditional strategy of patch and upgrade - simply adding new features and functions - is leaving banks with fragmented, siloed platforms that then lead to poor customer services.
The answer, RS2 said, is that rather than building, buying, or partnering for new technology, banks should instead adopt AI-powered orchestration layers to enhance their existing systems, without the cost and risk of a complete overhaul.
“The insights in our research make it clear: banks cannot afford to continue patching outdated systems while the financial landscape evolves around them," said RS2 CEO Radi El Haj.
"Instead of investing their IT budgets in maintenance and patching, banks must prioritize and allocate their investments in innovation and new products if they want to stay ahead."
By introducing an AI-enabled orchestration layer, banks create a central intelligence hub linking all their platforms, sharing data and giving access to a centralized set of metrics.
This, said the firm, can optimize banking operations by intelligently routing transactions, lowering processing fees, increasing authorization rates and reducing the number of failures.
Legacy tech woes just won't go away
The impact of legacy IT systems on the banking sector has been a long-running issue for IT leaders, with many institutions struggling to modernize IT infrastructure.
A report last year from 10x Banking found that 55% of banks view their core banking systems as the biggest obstacle to achieving their digital goals, and that 53% of those using legacy core systems are struggling to scale their operations due to data silos and production bottlenecks.
Emerging technology adoption is a contentious topic in the sector, however. Many IT leaders are wary of moving to new technologies, particularly generative AI. Around seven-in-ten cited security and compliance considerations as primary concerns.
Two percent of those surveyed said they had no plans to move away from their legacy systems, with 42% planning to replace elements of their outdated technology stack within the year.
However, fewer than a third have successfully integrated AI into their core systems, although 39% are planning to implement it within the next year and 27% in the next two to five years.
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