Hint: it starts with “legacy”.


Traditional banks just can’t catch a break these days. “Financial institutions are museums of technology,” a participant at EY’s Bank Governance Leadership Network summit pointed out last year – and with good reason. Most banks still run on core banking systems written in COBOL, a programming language developed in 1959. Also known as the time when computers were, for the most part, error-prone pocket calculators of the size of an average living room.

There are two problems with that.

First, new-generation tech tools, written in Java or Python, don’t play well with COBOL-based legacy systems. Second, neither do new-generation programmers. “The stakes are especially high for the financial industry, where an estimated $3 trillion in daily commerce flows through COBOL systems. The language underpins deposit accounts, check-clearing services, card networks, ATMs, mortgage servicing, loan ledgers and other services,”CNBC reports.

In 2018,Gartner went as far as to predict the extinction of 80% of heritage financial service providers by 2030, should they fail to catch up to digital pioneers, such as challenger banks and fintech disruptors.

You might sense a common theme here, which is tech. Bad tech, to be precise, which keeps banks from moving with the times. The roots of the problem, however, lie well under layers and layers of outdated software. “The real issue is not that core banking systems are 15-20 years old. The problem is that they were built to meet business needs from 10-20 years ago,” Áron Vitályos, W.UP’s senior banking consultant explains. In other words, an underlying legacy mindset might be the bigger culprit.

Back then, financial institutions were busy organising themselves around three major business segments: retail, premium and private. Personalisation, in essence, has been a privilege reserved for high-net-worth private banking clients with access to dedicated wealth management advisors. Today it’s the new norm. Spotify knows what tunes we’re in the mood for before we do, Amazon understands us better than most of our friends and, thanks toNetflix and Black Mirror: Bandersnatch, we can even direct our own movies with our own happy ending.

Incumbent banks, burdened by robust organisational structures, processes and regulatory framework, have a long way to go before reaching this stage. But it’s high time they took the first step of the journey: embracing a customer-first mindset instead of a product-first one. “Financial institutions have long relied on product- and portfolio-based strategies. Each sales manager has a target set for them in terms of how much revenue must be generated from personal loans or credit cards. This is the exact opposite of what personalisation is about,” Áron explains.

Legacy thinking often dictates that putting customers before sales targets equals less sales. But that’s not necessarily the case. Áron says: “Banks often stick to this legacy approach because they fear that otherwise they risk achieving their sales target of, let’s say, 10,000 credit cards per year. But if they offered data-driven, tailored customer experiences, they’d have the same chance of selling 10,000 credit cards, except to different customers. Ones who actually need and use them.”

Yet, many traditional players still think of personalised banking services as nice-to-have, buried beneath an endless list of must-dos, such as compliance with PSD2 or GDPR. Or they get the appeal but see it as a change way too radical. 

It doesn’t have to be, Áron reckons. “You can take an incremental approach to personalising customer experience. First you roll out spending reports to show customers where their money goes. In the next step, you add payment alerts or saving tips to help them with budgeting and money management. Once all your processes have been digitalised, you can move on to the final stage where customers can take care of all their banking needs without ever having to step into a branch.”


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