How your bank can perform a segment-based progressive modernization

If you've been following along with this series, you're now aware that there are three main approaches for your bank’s progressive modernization journey: journey-based, segment-based, and headless. Now that we’ve explored this first approach, it’s time to take a look at the segment-based method, another viable strategy your bank should consider.

Like last time, it’s all in the name here. The segment-based approach, naturally, is a technique that begins by modernizing at the business-segment level, typically on the onboarding or servicing side of things. It’s a common enough method, one that many banks may expect to perform every 10 to 15 years or so as their tech begins to fail. Unfortunately, banks often wait even longer to replace their outdated systems — which is one reason why nearly half of respondents to a recent poll named legacy software as one of the biggest barriers for digital transformation.

In these situations, banks are laboring with tech that’s at the end of its lifecycle, resulting in a near standstill of innovation, as well as sky-high maintenance costs. Once these banks reach an inevitable breaking point of technical debt, they decide that enough is enough, and who can blame them?

So, when banks are ready to change, the segment-based approach is a great way for them to begin working to modernize and replace their retail servicing segment, for example, and then move on to other relevant areas as needed.

As you might expect, this approach works best when you like what you have, but want to modernize it. At the end of the day, you’ll replace your tech with a more up-to-date version, albeit with the same basic functionality as what came before. Sure, it might have some new bells and whistles, particularly if you’re chasing feature parity, but the segment-based approach isn’t a major shakeup. Instead, it’s a re-envisioning for the future, which makes it compelling for banks that have limited budgets and lower risk appetites.

Despite a huge amount of demand for this approach, a word of caution. Since this method doesn’t involve any fundamental restructuring of the ways your bank words — for example by adopting a unified platform model — a segment-based play has a high likelihood of creating or exacerbating operational silos. If you’re looking for a reinvention of the way you operate and provide value to your customers, this isn’t it.

Additionally, if you indeed end up chasing feature-parity, which we don’t recommend, make sure you do so in a data-driven, customer-centric manner. Ask yourself, which capabilities do your users take advantage of on a day-to-day basis, and which ones do they tend to ignore? Sometimes, you’ll need to sacrifice a flashy new feature and cut your scope in favor of making improvements on things that are ultimately more valuable to your end-user, and that’s perfectly fine. After all, isn’t that what banking is all about — giving your customers what they want, rather than dictating it?

In the next blog, we’ll move on to the third and final option: the headless method, a more tech-centric, platform-based approach that will help you rewire your bank’s core channels so you can reduce complexity and logic duplication across your tech stack — an increasingly important consideration in modern banking.

For more information, check out our Banking Reinvented podcast, where Backbase Founder/CEO Jouk Pleiter dissects similar topics alongside Tim Rutten, EVP/Chief of Staff, and other digital leaders. Stay tuned as they chat about everything from progressive modernization to decomposing your bank’s complexity.