Legacy technology and tech debt are holding back banks in their digital transformation efforts, new research from RS2 has found.

The firm’s report found that banks are spending 70% of their budgets on maintaining these legacy systems, often employing a costly ‘path and upgrade’ strategy to their systems.

“All banks recognise the burden of technical debt which is the result of their continued reliance on legacy systems,” the report read.

This method is sapping resources, the research found, placing strain not just on budgets but on IT workers scrambling to mitigate risks and even adopting new technology on old, outdated systems.

The patching strategy has often left banks with fragmented platforms that are often incapable of sharing data, leading to data silos. This can compound to decreasing customer satisfaction as firms are blocked from extrapolating accurate data on customer experience due to their own tech.

Still, while ‘patch and upgrades’ has its own issues, other strategies present their own risks.

A simple ‘rip and replace’ method – where firms overhaul their systems entirely – can present significant levels of operational risk as these new systems require testing and proving at the individual but also interoperational level.

Phased introductions of new systems and technologies can smooth these transitions, allowing individual systems to be tested before being integrated across the firm.

RS2 has other advice for implementing new technologies and reducing the spend on legacy systems: using AI.

Rather than partnering with new technology vendors or adopting new systems right away, RS2 advises that firms integrated AI-powered orchestration layers to enhance their systems.

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This, RS2 says, will help meaningful improvements are adopted to optimise performance and minimise costs.

An AI-enabled orchestration layer can act as a “central intelligence hub”, RS2 says, that can link an organisation’s platforms and enable data-sharing and centralised metrics to better optimise performance.

RS2 says that this adoption can lead to improved fraud detection, payment optimisation, and automated compliance and regulatory reporting.