Today, building societies are facing a convergence of market pressures. Regulatory requirements, alongside increasing consumer expectations driven by the ongoing pace of technological evolution in the Financial Services sector, means they need to adapt to remain competitive.

Five industry drivers for digital transformation*

Industry research identifies five key drivers influencing the UK Financial Services market's transition from legacy core systems to the cloud. These drivers, also relevant to building societies, are:

1. High cost-to-income ratio: UK banks are facing a high cost-to-income (C:I) ratio, averaging 64.6%, which means a significant portion of their income is being consumed by operational costs, leaving less room for profit and growth.

2. Expensive customer service: Traditional banks have a high cost to serve (CTS), averaging £160 per customer. In contrast, digital challenger banks manage to serve their customers at a much lower cost, around £50 per customer. This stark difference highlights the inefficiency of legacy systems.

3. Rising IT expenses: Year after year, UK banks are seeing an increase in their overall IT spending. This trend indicates that maintaining and upgrading outdated systems is becoming increasingly expensive.

4. Maintenance costs of legacy systems: In 2023 a staggering 57% of total IT budgets were being allocated to maintaining legacy systems. This heavy expenditure on outdated technology diverts funds from innovation and modernisation efforts.

5. Stability and resilience issues: Banks are under pressure to meet the Financial Conduct Authority's (FCA) operational resilience deadline by 2025. Legacy systems often struggle with stability and resilience, making it crucial for banks to transition to more robust cloud solutions.

Collectively, these factors highlight the need for both banks and building societies to move away from legacy systems and embrace cloud technology, resulting in improved efficiency, cost savings, and better compliance with regulatory standards.

*Sources:

(1) IBSintelligence NextGen Core Banking: The Future of Banking Q1 2024 - IBS Intelligence

(2-4) Accenture research Cloud Value: Navigating the Cloud Adoption Journey | Accenture

(5) IBSintelligence NextGen Core Banking: The Future of Banking Q1 2024 - IBS Intelligence

Expediting the transformation process: the role of the accelerator

The perceived 'slow burn' nature of this core banking transformation is often attributed to the scale and complexity of legacy systems that building societies must contend with. However, the growing number of success stories from building societies that have embraced digital strategies showcase the transformative impact of technology partners like Mambu in enabling this shift. And, more specifically, the deployment of accelerators in supporting this journey.

Designed to streamline operations, enhance efficiency, and drive innovation, accelerators offer pre-built solutions and frameworks that can be customised to meet business or technical requirements. They provide tools and methodologies to accelerate the digital transformation journey, allowing organisations to tailor these solutions to their specific needs.

Specifically for building societies, Accenture offers a set of accelerators designed to facilitate the transition to new core banking systems. These accelerators, particularly with Mambu’s API integration capabilities, make the transformation process much smoother and faster. They focus on the speedy setup and configuration of Mambu, provide a proven pathway for migration, and include an account rules ecosystem that works in parallel with Mambu to enable the service of UK Savings and Mortgages products.

By taking advantage of these accelerators, organisations can enhance their competitive advantage, improve operational efficiency, and drive growth in today's rapidly evolving digital landscape.

There’s no doubt that the transition from traditional banking practices to digital platforms holds immense promise for innovation and growth. While transformation may seem daunting, success stories and the progress we are seeing highlights the potential for technology to enhance customer experiences and drive organisational growth across the Financial Services sector.