Digital transformation is at the forefront of discussions for many legacy banks and financial institutions. With the banking sector rapidly evolving, the shift toward digital banking solutions has become necessary for enhancing customer acquisition, improving engagement, and streamlining operations. As financial institutions adapt, they seek to optimize service delivery models, enabling them to reduce operational costs and offer more modern banking experiences.

However, transitioning from traditional banking systems to digital platforms is no simple task. Studies reveal that many financial institutions fail to meet their digital transformation goals, with only about 30% managing to complete the transition successfully. This struggle is often attributed to outdated and complex IT infrastructures, technical debt, resource limitations, and slow implementation speeds.

This is where managed services can play a pivotal role. By adopting a managed services approach, banks can address these challenges more effectively, accelerating their digital transformation while realizing the full potential of modern banking.

Why Legacy Banks Struggle with Digital Transformation

One of the primary challenges banks face in digital transformation is the difficulty in separating business operations from IT management. Often, institutions are so focused on maintaining their outdated IT infrastructure that they overlook essential innovations that can improve customer satisfaction and operational efficiency.

Furthermore, many banks lack the necessary expertise to execute a successful digital transformation strategy. This gap can result in misaligned objectives, poor integration of new technologies, and failure to adapt existing processes. Moreover, the lack of proper implementation often leads to missed opportunities for long-term growth.

Here are some of the key obstacles legacy banks face:

Fragmented IT Infrastructure

Many legacy institutions operate on outdated, fragmented IT systems that have been upgraded in silos over decades. These systems, which lack the agility needed to integrate new technologies, are a major barrier to digital transformation. As a result, banks struggle to provide seamless customer experiences and innovate with new digital products and services.

Technical Debt

Technical debt refers to the cumulative costs of relying on quick fixes instead of long-term, sustainable solutions. Over time, outdated systems and inefficient code create ongoing challenges that hinder innovation and product development. This “dark matter” of banking technology can result in spiraling costs, delays, and hidden risks, making it harder for banks to modernize their operations.

Resource Limitations

Legacy banks often face budget and talent constraints, both of which hinder their ability to execute digital transformation strategies effectively. A shortage of skilled professionals and limited budgets can cause projects to exceed expectations, leading to costly delays and missed milestones.

Slow Pace of Innovation

Traditional banks typically take months to roll out new products and services, while digital-first competitors launch updates much more quickly. This disparity in speed makes it difficult for legacy institutions to keep up with customer expectations and market demands. To close this gap, banks must embrace a more agile approach to digital transformation.

How Managed Services Can Address These Pain Points

Managed services can help financial institutions overcome these challenges and speed up their digital transformation efforts. By outsourcing technology operations to experienced managed services providers (MSPs), banks can focus on their core business while benefiting from expert support in modernization efforts.

Access to Expert Knowledge

Managed service providers bring valuable technical expertise gained from working on similar digital transformation projects. With a proven track record, these providers help banks build clear implementation plans, avoid common mistakes, and create efficient roadmaps. By leveraging MSPs, banks gain insight into industry best practices and lessons learned, ultimately ensuring a smoother transition.

Addressing Technical Debt

MSPs play a key role in identifying and resolving technical debt. They collaborate with banks to modernize core banking systems, replace outdated components, and develop scalable, flexible technologies. This process ensures that financial institutions are not held back by inefficient systems, enabling them to innovate more freely and respond to customer needs faster.

Flexible Resource Models

Rather than investing in permanent in-house staff, banks can scale their resources as needed throughout the transformation process. MSPs offer flexible resource models that allow institutions to access the right expertise when required, without the financial burden of long-term hires. This approach also helps fill skill gaps in areas like technology development, implementation, and support.

Speeding Up Innovation

With the help of MSPs, financial institutions can reduce product development cycles and accelerate the release of new features. By leveraging MSPs’ experience and technological capabilities, banks can deploy solutions faster and respond to market shifts with greater agility. For example, Codebase Technologies helped Bahrain Commercial Facilities Company launch a co-branded youth card in under two weeks, showcasing the power of managed services to drive innovation.

Minimizing Operational Risks

During the digital transformation process, banks often face risks like data migration challenges, system downtime, compliance breaches, and resistance to change from employees. Managed services help mitigate these risks by providing ongoing support to ensure smooth transitions. Providers assist with data migration, offer backup solutions, and help manage compliance requirements, ensuring that banks avoid disruptions that could affect customer trust and satisfaction.

Steps to Succeed with Managed Services

To make the most of managed services, banks should follow a structured approach to ensure they are maximizing their digital transformation efforts. Here’s a simple framework for success:

1. Define Clear Objectives
   Start by identifying the primary goals of your digital transformation. Whether it’s improving customer experience, modernizing legacy systems, or enhancing operational efficiency, clear objectives will guide your decisions and ensure alignment with managed services providers.
2. Evaluate Existing Infrastructure
   Conduct an audit of your current systems to understand where technical debt and inefficiencies lie. This helps identify areas where managed services can be applied most effectively.
3. Select the Right Partner
   Choose an MSP with extensive experience in financial services and a solid track record of managing complex transformations. The right partner should offer scalability, regulatory compliance, and custom solutions tailored to your needs.
4. Adopt a Phased Implementation Plan
   Rather than attempting to overhaul everything at once, start with non-critical operations and gradually expand to more important systems. A phased approach helps minimize risk and ensures a smooth transition.
5. Focus on Change Management
   Successful digital transformation requires more than just technology. Work with your MSP to develop training programs and strategies for employee adoption, ensuring a smooth transition across your workforce.
6. Monitor and Optimize
   Set key performance indicators (KPIs) to track progress and optimize processes. Regularly review results with your MSP to refine strategies and adapt to changing needs.

Conclusion: The Role of Managed Services in Digital Transformation

Digital transformation is crucial for the future success of legacy banks, but it’s not without its challenges. Managed services offer a strategic approach to overcoming these obstacles by providing expert guidance, flexible resources, and ongoing support. By following a structured approach and partnering with the right MSP, financial institutions can modernize their operations, improve customer satisfaction, and stay competitive in an increasingly digital landscape.