There are many considerations that banks need to make when bridging the legacy gap with blockchain. We touched on some basic factors that affect payments projects in Part one . In this post, we will examine some of the key technological and regulatory considerations when upgrading your legacy payments system.
See Part 1: Bridging the Legacy Gap: Is Blockchain Right for You?
Legacy System Integration
The major challenge that banks face in modernizing their payment systems is the required integration of legacy technology. How can banks securely record all transactions and data on the Blockchain? Any new payments solution, whether blockchain-based or not, needs to be able to handle and record all transactions. If the new solution cannot meet the bank’s needs, then legacy systems cannot be retired.
Most financial institutions have built their existing infrastructure on a disparate set of technologies over an extended period. This diverse mix of technology has made integrating the current solutions one of the most significant challenges in the next generation of banking.
It’s clear that many banks do not have the technical expertise to integrate legacy systems with emerging technologies to improve the user experience. Banks should look to partner with firms that specialize in technology solutions to reduce complications. This partnership can bring two benefits.
The first benefit that arises from financial services organizations partnering with technology companies is an expertly integrated solution, built using the technical skill of a partner firm. This partnership will benefit financial institutions by providing them with a better payments system.
The second benefit of partnering with a technology company to build your payment solution is the fact that, if chosen correctly, your partner can help fend off competition from FinTech firms.
How? Well, if you select the right partner, they will be on top of developments in the technology sector. They can be a long-term partner that can help your organization evolve with ongoing technology trends, giving you a distinct technology advantage over your competitors.
Regulatory and Compliance
Another major challenge facing banks modernizing their payment systems is maintaining compliance. Financial services is an industry mired in regulation. Adding new technological capabilities to meet the needs and desires of customers can lead to the threat of non-compliance.
Every jurisdiction has slightly different regulations for financial services providers, but there are similarities for all of them. One common factor is that financial institutions need to archive transactions to ensure the organization is complying with all regulations. Other concerns with compliance and new technology suites include the fact that there is a degree of the unknown.
How secure are the latest technologies? What data could be exposed in a breach?
That line of questioning leads to several unknowns, and that can lead to significant trouble for financial institutions. Banks regularly act with caution, and remaining compliant is more important than introducing new technology that may improve processes.
Every financial institution that wants to bridge the payments gap by introducing new solutions to their technology suite needs to tackle the challenges of remaining compliant and gaining an in-depth understanding of their future payment solutions.
These challenges have no basic solutions. Regulators still need to build an in-depth understanding of the blockchain and other popular payment technology. Brands need to begin transitioning their technologies to more modern, twenty-first-century options so they can gain a better understanding of compliance risks and continually update the technology solutions to improve the security of their customer data.
Related: What Is the Blockchain Technology and Why Is Everyone Hyped About It?
To learn more about regulatory considerations surrounding blockchain technologies, check out the Harvard Business Reviews article: How Safe Are Blockchains? It Depends .
Takeaways
There are many factors that the financial services industry needs to be aware of if they intend to bridge the legacy payments gap with blockchain. Particular questions that need to be asked before integrating include:
If you have answers to all these questions, your organization will be in an excellent position to grow your client base in the future. People want to be able to transfer funds and do their banking through a channel which is convenient to them. Upgrading legacy payments systems is a required activity, it’s better to start sooner rather than later. Bridge the legacy gap today!