Top 6 Challenges in Enterprise Application Modernization and How to Overcome Them

As digital technology continues to advance, legacy tools and applications cannot keep up with the fast pace of innovations and changing market requirements. The 2023 Foundry survey found that CIOs rate application modernization as their 3^rd highest priority. Over 90% of CIOs believe that IT spending on modernization will grow – or at worse, stay the same.

In the financial services domain, application modernization is an essential part of improving the customer experience (CX) and service. 72% of financial firms are spending more on digital solutions this year – than in 2023.

Why must financial services companies focus on application modernization? First, let’s discuss its benefits.

How Application Modernization Can Benefit Financial Services Companies

By modernizing their financial applications and the underlying infrastructure, companies in the financial services industry can benefit from:

• Improved Performance

A majority of legacy systems and applications are unable to scale up their performance levels due to multiple bottlenecks. On the other hand, modern applications are lighter and more scalable, thus enabling companies to deliver consistent performance even for high workload requirements.

• Better CX

Modernized financial apps are intuitive and easier to use for consumers. With their flexible architecture, modern applications make it easier for financial companies to respond to changing customer needs.

On the other hand, legacy applications are typically built on a monolithic framework, which limits their ability to deliver an exceptional CX.

• Data Security

As most financial services firms collect sensitive customer information (like their personal details), they need to prioritize data security. Legacy apps are not designed to work with web-based financial services and massive amounts of data, thus making them susceptible to security breaches.

The application modernization process is designed to incorporate security practices and protocols from start to finish. This enables financial companies to adhere to industry regulations and secure their customer data.

• Reduced Expenses

While financial companies may incur high modernization costs during implementation, modernized apps are cost-efficient in the long run. By addressing cost factors like technical debt and manual processes, application modernization can reduce operational costs and improve efficiency.

6 Challenges in Application Modernization – And How to Overcome Them

For financial services firms, application modernization is beneficial – but also comes with its share of implementation challenges. Here are some of the common challenges:

1. Legacy Systems

Despite their limitations, financial firms continue to use legacy applications built using outdated tools and infrastructure. Due to incompatibility issues,  legacy systems cannot be migrated to modern cloud platforms or architectures. At the same time, any upgrade of legacy systems can disrupt business operations, thus leading to extended downtime.

As a solution, financial companies can opt for gradual modernization by refactoring legacy code. This can reduce their dependence on legacy systems. Alternatively, through containerization or virtualization, companies can continue to run their legacy code in modern systems without any modification.

• Talent Shortage

A successful application modernization process requires technical skills in cloud migration and code conversion. However, the shortage of critical technical skills and professionals across the globe is a serious challenge for financial firms.

Additionally, financial companies have budget constraints for recruiting professionals from the existing pool of resources. How can they overcome this talent shortage?

• Upskilling their existing workforce to implement modernization projects.
• Partnering with third-party experts or solution providers with expertise in application modernization.

• Data Security Concerns

While legacy systems are susceptible to security-related vulnerabilities, modern architectures can also bring their share of challenges related to data privacy and security controls. Additionally, during the modernization process, financial firms may expose vulnerabilities in data migration that could expose sensitive data to hackers.

To counter this challenge, financial services firms need to adopt a “security-first” approach by integrating safety considerations into their modernization plan, deployment, and maintenance phases. Besides that, they need to adopt modern security practices such as:

• Multi-factor authentication
• Advanced data encryption
• Role-based access control

• Regulatory Compliance

Among the highly regulated industries, the financial services sector must at all times comply with standards like GDPR, HIPAA, and PCI-DSS. As industry regulations keep evolving, modernized applications must adhere to changing compliance requirements.

To meet these standards, financial companies can:

• Conduct regular vulnerability tests to check if their data security system is in line with industry regulations.
• Align their modernization process with relevant industry regulations like HIPAA and SOC-2.
• Always stay informed of changing compliance requirements.

• Business Disruption

Without a planned implementation strategy, application modernization can temporarily disrupt business operations, thus causing downtime. This can hamper customer experience and lead to frustration. Apart from that, system downtime means loss of real-time data for financial companies.

How can these companies prevent any business disruption or downtime? Here are some measures:

• Implement the modernization process with a phased approach to minimize disruption.
• Communicate the modernization schedule to all business stakeholders and inform them of potential disruptions.
• Design a comprehensive data recovery plan to reduce the impact of the downtime.

• Organizational Culture

Despite their limitations, legacy systems and applications are often part of the organizational culture. Employees prefer to use legacy tools simply because they are familiar with their functionalities. In this organizational culture, there is a change resistance mindset that can disrupt the wider use of the modernized application.

Here’s what financial companies must do to change this organizational culture:

• Communicate the benefits of the modern applications to the existing workforce.
• Provide ample training and support for employees to use the modernized app.
• Involve representatives from various business functions in the decision-making process.

The Modern Way Forward

The presence of legacy infrastructure is among the main hurdles to application modernization in any enterprise. Legacy dependencies contribute to technical debt and limit the level of technology-led innovation in the financial domain.

At Verinite, we have helped organizations modernize their legacy systems with minimum business disruptions. Our application modernization approach aligns with your current and future business needs.

Do you want to modernize your application development and maintenance for long-term gains? Get in touch now.