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Financial Services and Legacy Systems

Modernize Legacy Systems, Leverage Hybrid Integration to Stay Competitive

Financial services have changed profoundly in the last 30 years. Customers expect constant access through secure mobile interactions with providers — interactions that no longer take place within the four walls of a bank. At the same time, financial services companies are contending with an ever-growing list of regulations and regulatory agencies that govern those interactions. And most profoundly, information has become the foundation of many financial services products and services. Data is as important an asset as currency.


Yet despite these rapid changes, many would argue that with slow adoption of new technology and limited connectivity, the financial services industry hasn’t changed nearly fast enough. While SaaS, Cloud and API technologies enable mobile banking and expand the horizons of internal and external innovation, many within the industry are hesitant to take the risk of opening access outside of the firewall. It seems easier and safer to stick with the tried-and-true--the legacy systems that are at the core of most financial companies.

However, the modern marketplace—not just the financial services marketplace but the modern economy—will no longer allow banks to survive with closed systems. Legislative pressures like PSD2 are also demanding change. Banks must take the leap and become connected banks. They must innovate and incorporate disruptive technologies, and at a rapid pace, to stay competitive. Thankfully, this does not necessitate ripping out core systems in favor of new ones. Instead, hybrid integration—connecting legacy systems to countless new internal applications and external third-parties via connectivity layers like enterprise service buses (ESB) and integration platforms as a service (iPaaS)—can meet customer demand for omnichannel banking, become a solution for IT to ensure regulatory compliance, drive new revenue, and reduce costs.

In this article we’ll discuss the challenges facing financial institutions, and the opportunity that modernizing financial services’ legacy systems offers in meeting those challenges.

The state of the industry

From banking to lending to insurance, many financial services companies are relying on decades-old software to power their day-to-day business. Few modern global companies can rely on  aging infrastructure and continue to remain competitive, but until recently financial services companies had one thing going for them: Their competition was reliant on the same core systems.

For everything from internal reporting to compliance to customer account management, these companies had made one-off upgrades and enhancements and built point-to-point integration with a few key third-party software packages. And the systems were working.

Then a slew of disruptive events sent the industry reeling:

Cloud Technology

The rapid adoption of cloud technologies and the ubiquity of connected mobile devices are creating innumerable new points of access and demands for financial services data. But most core, on-premises systems were built before the age of APIs and SOA, and intended to connect only to other back-office systems. Any connections require custom coding and even direct access to the system itself, leading to throttling and load-balancing concerns.

At the same time, the rise of SaaS and mobile applications outside of the financial services industry have created an expectation of new product innovation and availability from financial institutions. Non-bank and alternative providers are analyzing traditional markets like financial and creating great niche products which consumers are quick to adapt. Mobile payments providers like PayPal and Stripe, credit score providers like Credit Karma, and even micro-finance and micro-lending are creating consumer demand by offering “traditional” financial services products at a lower cost than the big banks can. Moreover, they’re making the entire experience much easier. This innovation means banks are faced with a glut of small but powerful new competitors.

Financial services companies are working to stay competitive by monetizing the vast quantity of data available to them, but the industry is under greater regulatory scrutiny. Banks must harness data but ensure compliance with data governance restrictions.

Finally, the silos that exist between legacy accounting systems and new departmental applications is leading to a fragmented view of the customer. Firms that lack a complete picture of a customer lifecycle—for example, knowing that a home buyer applying for a mortgage should trigger a homeowner’s insurance promotion—causing them to miss out on opportunities for incremental revenue. And the customer has a disjointed, often frustrating experience where, for example, branch customer service representatives can’t access the status of a loan application. To remain competitive, banks must strengthen customer relationships, all while improving operational efficiency and strengthening their balance sheets.

While these challenges facing the financial services industry may appear daunting, and many of them may appear to require massive technology upgrades, there may in fact be a single solution: connectivity.

What is connectivity?

Connectivity refers to the integration of core systems with both internal and external systems. While many legacy systems were not built to enable service oriented architecture (SOA), a connectivity layer built on top of core systems can act as an agility layer, pulling data from core systems, normalizing it, sharing it with third-parties, and vice versa. Integration platforms can connect on-premises systems to the cloud, modernizing and future-proofing them.

Connectivity layers also enable hybrid integration—connecting on-premises systems to the cloud. Moreover, they empower IT teams to quickly modernize systems, helping toward the main business goals of profit, regulatory compliance, and customer satisfaction.

A connected bank, then, is one that modernizes core banking systems by connecting them to the cloud, allowing IT teams the agility to quickly “spin-up” integrations with new third-party applications and take down obsolete ones, without requiring any one-off coding changes or any direct access to the core system itself. It opens data to customers in new, more easily accessible ways. And finally, integration provides an added layer of security on top of core systems by acting as a messaging buffer, and enabling regulatory compliance and reporting.

What can connectivity do for financial services?

Integration platforms help connect on-premises systems to the cloud, modernizing them and enabling discovery of new profit channels. This, in turn, removes the stranglehold that these legacy systems can have. A connected bank is no longer held hostage by legacy systems.

Connectivity layers offer an opportunity to re-architect infrastructure which can aid in everything from compliance to creating systems efficiencies. Where normally re-architecting can be a massive disruption that most companies can’t afford, hybrid integration means core systems can continue to function while the connectivity layer is installed, enabling API connectivity with third-party applications while the central system keeps humming along.

Integration helps banks address the reality that consumers have more financial services options than ever before. Consumers expect to conduct their business via mobile banking, have more channels to vent on when they’re displeased, are more likely to change banks several times, and are more likely to have relationships with multiple financial services companies at a time. Opening core systems and data to third parties via SOA and APIs means financial services companies can find new ways to profit off of their data, create new revenue streams, and form stronger relationships with customers.

For example, traditional lending takes place between a bank and a customer—there is a direct relationship, and the bank was the only intermediary between a customer wanting a loan and the lender evaluating that request. Now there are multiple intermediaries, including loan brokers, mortgage bankers, title companies, appraisers, inspectors, guarantors, and more. This industry fragmentation naturally cuts into traditional profit streams, and connectivity lets providers ensure their slice of the pie by direct involvement in more steps in the chain, or through systems speed and efficiency.

An agile infrastructure enables innovation, and turns legacy systems from a liability into an asset. They allow companies to leverage existing data to unlock new profit channels, and to maximize incremental revenue by offering new features in existing products. All of this, in turn, allows banks to sustain profits and grow even in a low interest rate environment.

The MuleSoft solution

MuleSoft’s Anypoint Platform enables financial services firms to address industry imperatives, realize new revenue opportunities, and deliver on customer expectations by modernizing their integration architecture with an open, extensible platform for SOA, SaaS integration and APIs.

Financial services must cope with rapid change, create a culture of innovation and a digital infrastructure that supports it, adjust to ever-changing regulatory requirements. MuleSoft is the ideal solution to make this happen. Contact us today to learn more or visit our solutions for financial services page. 

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