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Digital transformation is top of mind for financial institutions of all stripes, yet many are cautious when initiating such projects and unsure where to begin due to the inherent risk associated with modernizing legacy systems.
This is especially true when it comes to modernizing payments systems. Today’s consumer wants to not only pay using traditional card-based methods, but also wants to use the vast array of digital payments available and new innovations such as buy now pay later (BNPL).
How financial institutions can successfully modernize their payments systems will be a focus of discussion at Diebold Nixdorf’s upcoming Intersect conference in Las Vegas on August 29–31. The annual conference is returning after a two-year hiatus brought on by the COVID-19 pandemic.
To hear more about what financial institutions will learn about modernizing, PaymentsJournal sat with Michael Engel, Managing Director & VP Payments for Diebold Nixdorf, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service for Mercator Advisory Group.
Overcoming Fear of Change
The biggest reason financial institutions put off modernizing their payments systems is the potential risk and fear of something going wrong. Engel noted the adage “no one ever got fired for buying IBM,” and said many bank and credit union executives hesitate to move from systems that work fine, even if the systems are decades old.
“Banks do understand that they need to future-proof,” he added. “But change is always associated with risk. Many feel soft and cozy with their legacy systems, and it feels safer to do nothing than to take a risk.”
Still, he noted that there are risks involved in simply staying the course. For one, financial institutions that do so can’t offer their customers access to the latest innovative digital products and services. Being able to do so is a matter of staying competitive.
“Fintechs will come in and provide these services and win customers if banks don’t change,” Engel said.
He added that the siloed legacy systems many financial institutions have in place are saddled with technical debt and are increasingly time-consuming to keep running smoothly.
Grotta agreed that many financial institutions are now reaching a tipping point when it comes to modernizing systems.
“I talk to a lot of banks about modernization, and to date, it’s mostly been a lot of talk, but we are now reaching the point where they are talking about when and where and how to modernize,” Grotta said.
Taking a Step-by-Step Approach
A major focus of the Intersect conference will be helping financial institutions answer those questions of when and how and where to modernize. Engel noted that for many institutions, getting started is the biggest hurdle; they simply don’t know where to begin.
“For so many individuals at financial institutions, finding a way to get started and just defining what modernization is, is the really hard part,” Grotta added.
That’s why Diebold Nixdorf usually proposes a phased, step-by-step approach to modernizing systems. Engel noted this is safer than a “big bang” approach where systems are all replaced at one time, and the step-by-step approach usually assuages risk-averse bank executives.
The conference will feature an in-depth workshop on how banks and credit unions can take this approach, with a workbook they can fill out to help make a business case and hearing case studies from institutions that Diebold Nixdorf has already successfully worked with on modernization.
“We’re looking to create a process that takes them step-by-step,” Engel said. “We’re going to look at the risk associated with changing systems and share best practices from real-life implementations and what worked and what didn’t work.”
A big key is to consider up-front the potential challenges that may arise throughout the project and make plans for dealing with them.
“A systems migration should not be rushed into, and no detail should be overlooked because it can create a burden at the end,” Engel said. “You should spend more time on analysis and planning at the beginning.”
However, Engel added that taking a measured approach does not necessarily mean that it will take a long time to roll out the new technology.
“It may sound contradictory, but if you keep that steady pace in a risk-minimized environment you can actually deliver new products faster than with any big bang approach,” he advised. “The key is to deliver value during each phase as it becomes available in this cloud-based native environment and ready to be consumed by customers.”
Grotta agreed, noting that “the big bang approach is fraught with risks” and a phased approach is easier to sell to internal stakeholders.
“The idea of a methodical and phased approach has got to be music to any bank executive’s ears,” she said.
Ultimately, no matter where any financial institution stands in its own modernization journey, it can benefit from the workshop and hearing learnings and best practices from other institutions that have went through the process already, Engel said.
“We want them to know that they are not risking one’s job or career by embarking on a modernization project,” he added. “It’s about how to approach change in a manageable way.”
