News Updates:

Why SA's banking sector needs to get future-fit

Why SA's banking sector needs to get future-fit
23-05-24 / Shelly Nxumalo

Why SA's banking sector needs to get future-fit

The South African banking sector stands at a pivotal juncture, facing critical  decisions over its reliance on an outdated language system. Since the 1980's, the Common Business Oriented Language (COBOL) has been the operating language of financial services, underpinning essential operations such as deposit accounts, check-clearing services, card networks, ATMs, mortgage servicing, loan ledgers and other services.

While COBOL's design and readability made it a cornerstone of the banking world, programming languages and their ecosystems have come a long way. Today's technologies offer developer tooling, utilities, pre-built components, cloud infrastructure, and even Artificial Intelligence assistants. In short, the world has moved on.

And so have the programmers. Finding COBOL programmers today can be challenging due to the language's declining popularity and the ageing workforce familiar with it. Younger programmers are not exposed to COBOL in their training, forcing financial institutions to spend inordinate amounts of money on in-house training. One South African bank had to launch its own IT academy offering COBOL learnerships to train programmers to manage its core system. Alternatively, banks often hire retired programmers at high costs  to manage these legacy systems. A 2017 article by Reuters reported that in the US, experienced COBOL programmers were earning more than $100 an hour "to patch up glitches, rewrite coding manuals or make new systems work with old". It might be cheaper to pay more for experience in the short term but what happens when the knowledge and experience are no longer around?

"In my world of payments technology, I still see plenty of legacy payment systems that run on COBOL. In particular, many of the batch payment schemes were designed in the heyday of COBOL, were built in COBOL and have survived into the cloud computing era," says Dave Glass, CEO and Founder of Electrum, South Africa's leading cloud payments technology company.

Glass sites two main reasons why banks still cling to COBOL: cost and risk. "Change is expensive, and banks often baulk at the capital outlay for new system builds, and when they do embrace change, they risk their operations and their relationships with existing customers - who are of course very cautious in matters relating to their financial affairs," he explains.

The Commonwealth Bank of Australia's (CBA) experience underscores this challenge: in 2012 it cost CBA $750 million ($1 billion Australian) and five years to replace its ageing COBOL-based legacy core banking platform with a more modern system.

Nonetheless, change is inevitable thanks to ever-increasing competitive pressure. Neo-banks and fintechs, enabled by new technologies and progressive regulations, operate more cheaply, rapidly and agilely. Without modern systems, banks risk stunting their growth potential as legacy systems hinder their ability to meet service demands. Upgrading COBOL will require significant investment and time, but modernisation positions banks for future growth - enticing new customers and meeting existing customers' changing needs. In the long run, the cost of not modernising far outweighs the cost of change. Moving to newer technologies can help banks tap into a larger pool of skilled developers.

Electrum's recent Modernised Payments in South Africa report reveals a clear trajectory towards the adoption of instant electronic payments. This transition not only reflects evolving consumer preferences but also presents promising opportunities for all stakeholders within the ecosystem.

As banking operations grow in complexity and volume, cloud-based solutions built in modern languages offer greater scalability, allowing banks to handle larger volumes of transactions and data more efficiently. They also provide greater agility and flexibility, crucial in today's fast-paced and competitive banking landscape. Improved integration capabilities will allow banks to seamlessly integrate with other systems, platforms, and services creating a more connected and interoperable banking ecosystem.

Financial services often connote new systems with unnecessary risk. However, outdated systems carry just as much risk. Running core global operations on code no one writes or understands anymore is a huge gamble. Without modernization, banks risk being left behind.

"The future of banking lies in embracing next-generation payments technology and the potential benefits of scalability, agility, cost-effectiveness, and innovation make it a compelling proposition for banks looking to modernise their technology infrastructure and stay competitive in the digital age," Glass concludes.

Leave a Reply