Whilst we talk about legacy technology as if it is commonplace across industries, it's a relatively new term within financial services. The financial services industry didn't use to compete by innovating for customers, instead they relied on regulatory barriers and even, to a certain extent, the barrier to entry of expensive infrastructure. With the advent of low-cost cloud computing and the emergence of challenger banks, that's now changed.
Challenger banks, which are built on modern technology, are amassing large numbers of new customers. The incumbents are largely not built on modern technology and the organisational structures that have helped the largest financial institutions get to where they are don't lend themselves to this new innovation-based competition.
Alongside this, there are additional competitors now entering the market from pure technology firms that have a huge userbase that can quite easily be targeted with desirable financial products.
What this means is that the big incumbents have significant competition and as they update their technology they also need to revisit their organisational and leadership structures, their people and culture, to gear up for innovation and agility, to stay competitive.
This is why many traditional organizations in the FSI industry want to start using hybrid cloud technologies (like containers, Kubernetes and microservices) and agile methods (like DevOps) to enjoy the advantages that their cloud-native competition enjoy: the ability to rapidly respond to market dynamics and deliver new, personalized experiences to customers, at scale.
Some of the more forward-looking banks have recognised this and are taking steps to build their own digital banks, targeting younger consumers.
There is good news - open source is gaining momentum. Banks and financial institutions are not only consuming open source technology, but they are beginning to open source their own solutions as well. Open sourcing something is not a trivial process but the benefits it brings in terms of rapid innovation, collaborative problem-solving and interoperability are increasingly clear.
If successful, banks can build a community around their own open source technologies - for example, data modelling tools. The open source community then brings new perspectives, new features can be developed more quickly, and the speed of innovation increases.
Alongside this, open source technologies can help drive standardisation across the industry, lowering barriers to entry for all, enabling more partners and organisations to work with - and contribute to - solutions that bring greater business value.
Tim Hooley is Red Hat's FSI chief technologist, EMEA.