Unraveling the COBOL Conundrum

Despite the proliferation of digital banking apps, the banking industry still runs almost half its systems on a 1950s programming language, which makes it difficult for financial institutions to innovate quickly. Beyond being old and rigid, COBOL (Common Business-Oriented Language) carries overlooked risks, making it a potentially unacknowledged crisis. Banks often view COBOL as reliable, but the older and more out-of-touch it gets, the more risks and challenges arise that banking executives must address. 

The Extent of the Problem – High Usage, Aging Expertise

According to Reuters research, a staggering 43% of banking systems are built on COBOL. This legacy language is found throughout the bank, from transaction processing to customer data management. There are billions of lines of COBOL code for banks, and a single bank can have hundreds of millions. This is not just a minor inconvenience; it's a fundamental vulnerability that could have severe consequences if not addressed. Complexity is a key factor in systemic technology risk, and COBOL systems are the classic example of rigid systems connected by a spaghetti of code behind the scenes. This is one of the reasons that simple regulatory changes are so hard to test and implement.

Complicating the matter is the stark reality that the experts who maintain COBOL systems are rapidly aging. The Reuters report found that only 11.5% of COBOL programmers are under 35, and most are well into their 50s. This aging workforce signifies a looming skills gap that could leave banks desperately searching for qualified personnel to maintain these critical systems.

The retiring skills gap means that even consultants like “The COBOL Cowboy,” who is now in his 80s, are in even more demand and harder to find. To add to the challenge, the top universities are not teaching COBOL, making it difficult to find younger programmers who know the language. Outdated code also makes it difficult to attract young talent since the top programmers want to use their skills in modern systems. 

The scarcity of experienced programmers and the complexity of COBOL code amplifies the risk of system failures and prolonged downtime, underscoring the situation's urgency.

Despite these issues, COBOL persists for several reasons. First, replacing billions of lines of code across the banking industry is a tremendous challenge. Migrating from COBOL to modern programming languages involves extensive rewrites, testing, and integration. The risk of disrupting business operations during the transition is high, leading many leaders to avoid disruption unless necessary.

Taking Steps to Unravel the COBOL Conundrum

However, the risks of inaction are far greater than the costs of modernization. Legacy systems are increasingly incompatible with the digital tools and technologies that customers now expect. AI-driven processes, mobile banking, real-time payments, and advanced data analytics require integration with modern software that does not play well with COBOL’s limitations. 

The first step towards addressing the COBOL conundrum is a comprehensive assessment of existing systems. Banking executives must understand the extent of their reliance on COBOL and identify critical areas that need immediate attention. This assessment should be followed by a detailed modernization roadmap that outlines the steps and timelines for transitioning to modern technologies.

Following the evaluation, banks can decide whether to rip and replace their systems or look for incremental changes. By modernizing one module or function at a time, banks can minimize disruptions and manage risks more effectively. This phased approach allows for continuous learning and adaptation throughout the process.

While transitioning to new systems, it is crucial to invest in training existing staff and hiring new talent proficient in modern programming languages. Creating a robust pipeline of skilled professionals will mitigate the risks associated with the aging COBOL workforce. At the same time, as long as COBOL remains a vital part of the technology underpinning, they should decide whether they need to outsource or train staff proficient in COBOL to maintain the current systems during any transitions. 

Modernizing systems is not just about replacing old code; it's about embracing innovation. Cloud computing, AI, and mobile technology offer transformative potential for banking operations. By integrating these technologies, banks can enhance efficiency, improve customer experiences, and stay competitive.

Unraveling the COBOL conundrum is not a task that can be deferred indefinitely. The risks of maintaining these outdated systems far outweigh the challenges of modernization. Banking executives must take proactive steps to transition away from COBOL, ensuring their institutions are resilient, secure, and capable of meeting the demands of today’s customers.