Modernization of Outdated Technologies in African Banks: A CTO Guidebook
Modernizing Legacy Systems in African Banks: A Strategic Approach to Digital Transformation
In the rapidly evolving world of banking, African financial institutions are facing the challenge of modernizing their legacy systems to meet the growing demands of customers and regulatory mandates. Here's how they can approach this transformation in a budget-conscious, risk-managed manner.
Embracing Phased Migration to Modern Core Systems
A key strategy involves transitioning to modern core banking platforms that emphasize flexible, API-driven architectures. For instance, a leading South African Big Four bank replaced its batch processing with a real-time, multi-tenant "process-once" architecture using POMT (Payments, Origination, Management & Treasury) platforms. This not only reduced legacy technical debt but also allowed incremental modernization, limiting disruption and spreading costs over time.
Automating Quality Assurance and Testing
To manage risks, banks can integrate flexible automated testing into their CI/CD pipelines. This includes reusable automation frameworks, API contract validation (such as Swagger standardization), and end-to-end integration testing. This approach reduces duplicate code, ensures stability despite evolving requirements, and enables rapid feedback loops after deployments.
Partnering with Proven Vendors
Choosing established vendors with local market experience is crucial. MIDBANK in Egypt, for example, partnered with Temenos after a rigorous selection process assisted by Ernst & Young. This strategy helps banks avoid vendor risk while gaining technology agility and faster time to market.
Aligning with Regional Payments Modernization Initiatives
Many African countries are modernizing national payment infrastructures to enable real-time, multi-channel payments. Banks need to integrate with these new systems to remain competitive. This reduces legacy reliance on expensive payment rails and encourages cashless transactions.
Leveraging Emerging Digital Finance Innovations
Adopting stablecoins and mobile-first digital infrastructure in sub-Saharan Africa supports inclusive financial services and remittances with lower cost and faster settlement times. Banks can take advantage of these opportunities by integrating with these new platforms.
Specialist Fintech Partnerships
Partnering with fintech platforms can accelerate modernization within budget constraints while reducing risk. Visa’s acquisition of Pismo illustrates this approach, enabling banks to access resilient, future-ready payments infrastructure without rebuilding everything in-house.
Incremental transitions, data cleansing and validation for migrated data, robust change management, pilot migrations, and parallel runs are other key strategies for successful modernization. However, it's important to note that these archaic cores lack flexibility, inflict architectural rigidity, and significantly slow innovation.
A case in point is a Tier-2 African bank losing digital banking customers to fintech challengers due to outdated core systems. Its legacy core systems are slow, rigid, and ill-suited to modern customer demands. Therefore, modernization is a marathon won through iterative sprints, focusing on flexibility, operational continuity, pragmatic partner ecosystems, and proven ROI.
[1] Modernizing National Payment Infrastructures in Africa: The Path to Real-Time, Multi-Channel Payments. (2021). Aite-Novarica Group. [2] Case Study: South African Big Four Bank Modernizes Core Banking Systems. (2020). FinTech Magazine. [3] MIDBANK Chooses Temenos for Core Banking Transformation. (2021). Temenos. [4] Stablecoins and Mobile-First Digital Infrastructure in Sub-Saharan Africa. (2020). Aite-Novarica Group. [5] Visa Acquires Pismo to Accelerate Modernization of Payments Infrastructure. (2021). Visa Inc.
- To ensure their competitiveness in the evolving business landscape, African banks could explore integrating technology innovation, such as stablecoins and mobile-first digital infrastructures, into their finance operations, following the example set by Visa's acquisition of Pismo.
- In order to maintain operational continuity and foster a pragmatic partner ecosystem during the modernization process, African financial institutions may benefit from partnering with proven vendors like Temenos, as demonstrated by MIDBANK's successful core banking transformation.
