Mainframe Modernization for Retail Banking

Addressing Critical Challenges of Legacy Systems to Deliver Modern Products and Services

Analyst Perspective

Technology innovation is driving and reshaping the financial services market. Traditional banks are modernizing, a new generation in fintech is evolving, and non-branch-based neobanks are emerging. The market is getting more competitive.

Regulations are adding pressure to traditional banks. These banks are highly regulated with new and more complex requirements being added. Many fintechs and neobanks are not subjected to the same level of regulatory oversight, offering competitive advantages.

Innovation in retail banking is focused on improving customer experience and product design, primarily driven by improving convenience, making products and services accessible across electronic channels, and personalizing the experience. The global COVID-19 pandemic has necessitated the movement toward digital channels and accelerated innovation.

Banks are struggling with the pace of innovation. Legacy technologies were often built upon rigid mainframe systems that were not designed for modern, real-time products and services. Mainframes often relied on batch processing. They were built around products, services, and workflows that would accumulate and be processed at the end of day. Customers now expect their banking to occur instantly. Risk Management and Fraud Prevention look for instant interconnectivity too.

These factors are forcing traditional banks to make difficult decisions about what to do with their existing technology. Much of the advice about mainframe issues does not consider the unique nature of modern banking. A new approach is required to address the unique needs that support the volume and speed required for modern financial transactions.

Info-Tech’s Retail Banking Mainframe Modernization report provides an overview of the challenges and offers key insights and practical recommendations for your bank to modernize and compete using the latest developments in mainframe technology.

David Tomljenovic
MBA, LL.M CIM
Principal Research Director, Financial Services Industry
Info-Tech Research Group

Executive Summary

Info-Tech Insight

Retail Banking is being transformed by accelerating competition, especially from startups which have no legacy infrastructure. New products and services are required to stay relevant with changing customer demographics and preferences. Legacy mainframe hardware, software and development methodologies are holding banks back and causing them to reconsider their mainframe investments. However, recent innovations are allowing banks to modernize their mainframes and transform them into purpose-built systems that can become sources of competitive advantage.

An evolution-based approach to mainframe investment, modernization, and monolith disassembly

Retail banks require modern platforms to effectively compete and grow

The pace of technology change has rapidly accelerated since the COVID-19 pandemic began and is placing increasing demands on technology groups within larger banks.

Competitive dynamics are rapidly evolving as consumer preferences, technology advancements and non-traditional providers are driving the need to modernize platforms. Platform modernization is being driven by:

• Increasing competition from fintech competitors. Nearly three quarters (73%) of financial services executives perceive retail banking as being the most susceptible to Fintech disruption (pwc, 2016).
• The growing number of neobanks who have no legacy technology or regulatory requirements. The International Monetary Fund (IMF) notes the fast growth and growing importance of fintech in financial services are creating systemic risk to global financial stability that needs to be addressed (IMF, 2022)
• Access to data and advanced analytics for designing financial products and services.
• Shifting client expectations as consumers demand convenience and personalization. In 2018, banks were spending $9.7 billion to enhance their client facing technologies to address new customer demands (Deloitte, 2018). The pandemic added focus on innovation.
• Changing demographics are leading to new customer segments, particularly among younger customers. A 2021 report of Gen Z, Gen X, and Millennials revealed that over 50% of these groups used a digital bank to provide their primary checking account (Finextra, 2022). Traditional banks must keep pace with digital banks to win younger customers.
• Growth opportunities through generational transfer of wealth places increasing importance on building your brand through fast and easy digital experiences that are relevant to client needs. It has been estimated that up to $68 trillion of wealth will be transferred from baby boomers (Forbes, 2021).