How Modernizing Mainframe Infrastructure Lowers TCO for Banks

For decades, mainframes have powered the core operations of banks around the world. They remain integral to banking processes like transaction processing, record keeping, and regulatory compliance due to their stability, scalability, and reliability.

Even with their advantages, old mainframe systems can be costly and complicated. This is especially true as banks depend more on digital solutions and newer platforms.

Modernizing mainframe systems requires a large initial investment and can present challenges. However, the long-term advantages usually make it worth the upfront costs.

In this blog, we will look at how modernizing can reduce costs for banks. It can also create new chances for growth and innovation.

Challenges of Legacy Mainframes in Banking

High Maintenance Costs

According to Gartner's 2021 "IT Metrics Data," organizations often use up to 90% of their IT budgets just to maintain their existing systems. This amount has been increasing as these systems get older.

Many mainframes operate on outdated hardware that needs specialized maintenance, often involving costly parts replacements and hardware repairs.

Licensing fees for proprietary mainframe software are usually high. As vendors stop supporting older versions, businesses must upgrade to newer, often more costly, licenses.

Legacy mainframes consume a substantial amount of electricity and cooling, further inflating the cost of ownership.

Skill Shortage

Mainframes usually use older programming languages like COBOL. There are fewer developers who know these languages now because younger programmers prefer modern coding languages and platforms.

A survey by Deloitte found that 71% of respondents believe their mainframe team does not have enough staff. Additionally, 79% said that finding the right skills and resources is their biggest challenge related to mainframes. As a result:

Many banks have fewer professionals who can handle mainframe systems. This leads to higher labor costs as they try to hire or keep the right talent for maintenance and problem-solving.

The reliance on limited expertise also means that institutional knowledge is at risk. As seasoned mainframe programmers retire, the knowledge required to effectively maintain these systems diminishes, leading to greater reliance on costly external consultants.

Limited Flexibility

Mainframes struggle to connect with modern APIs and digital platforms. This makes it difficult to integrate new tools or systems that could improve banking services.

Without a modern infrastructure, launching new products or services becomes a time-consuming and costly endeavor. This limitation slows a bank's response to market demands, impacting customer satisfaction and retention.

Customers now expect seamless, real-time services across digital platforms, which legacy mainframes are often unable to support.

The inflexibility of these systems can lead to outdated and disconnected experiences for customers. This can negatively impact a bank's ability to compete.

Lowering TCO with Mainframe Modernization: Key Strategies

1. Embrace Hybrid Cloud Solutions

A hybrid cloud strategy combines on-premises infrastructure with cloud services. This approach helps financial institutions take advantage of both types of environments.

This method allows banks to keep important and sensitive data on safe, local servers. At the same time, they can move less sensitive or easily adjustable workloads to the cloud.

A study by Kyndryl found that companies using hybrid strategies moved about 36% of their work from mainframes to cloud platforms, resulting in a total savings of $12.5 billion.

Hybrid cloud systems can lower infrastructure costs. They make storage and computing power work better together. This creates a flexible and affordable setup. It helps companies innovate quickly and grow easily to meet market needs.

2. Adopt Microservices Architecture

Transitioning from a monolithic to a microservices architecture enables organizations to break down applications into smaller, independent services.

This allows banks and financial institutions to improve certain parts of an application without affecting others. They can use resources better and make updates more quickly.

This approach increases scalability and reduces the maintenance complexity associated with legacy systems. 

Visual Integrator Consulting explains that this type of architecture improves reusability and modularity. It lets organizations use standard frameworks across different services. This approach helps to lower long-term operational costs by reducing repeated work and making code reuse more efficient.

3. Leverage Automation Tools

Using AI automation tools for tasks like batch processing, system monitoring, and finding anomalies can reduce the need for manual work. This also minimizes the likelihood of human errors.

Automation tools help streamline daily operations and enhance system reliability by proactively identifying and addressing potential issues before they escalate.

PingCAP highlights that AI tools can lessen the need for specialized mainframe skills. This change helps make operations more efficient and cost-effective.

4. Embrace Open Standards

Proprietary systems often lock organizations into specific vendors, limiting their choices and potentially leading to higher costs over time.

Open standards like Linux, Java, and Kubernetes allow banks to choose from more solutions and vendors.

Open standards let users connect to a large support network. This network includes developers, ready-made solutions, and helpful documents. Implementing this approach can lead to significant reductions in both time and cost associated with maintenance efforts.

5. Use Containerization for Application Portability

Containers help decouple applications from their environment, making it easier to migrate or redeploy them across different platforms without extensive reconfiguration.

This flexibility helps banks avoid vendor lock-in, reduces migration complexity, and enables optimized resource allocation, leading to savings on infrastructure and support.

Together, these modernization strategies provide a robust framework for reducing Total Cost of Ownership while enhancing operational flexibility and efficiency in the mainframe environment.

Next Steps for Banks Considering Mainframe Modernization

Assess Current TCO: Start by evaluating all costs related to mainframe infrastructure. This includes direct costs like hardware and software, as well as indirect costs like labor and downtime. This analysis will provide a financial baseline, allowing for a clear understanding of the potential savings from modernization.

Identify Critical Applications: Focus on high-impact applications for early modernization. Prioritizing key systems that drive customer interactions or operational efficiency can demonstrate quick wins, enhancing performance and setting a strong foundation for phased modernization.

Choose the Right Modernization Partner: Pick a vendor who knows the banking industry well. They should be able to create solutions that meet regulatory, security, and operational requirements. This will help ensure a smooth and affordable transition with reduced risks.

Conclusion

Modernizing mainframe systems is now essential for banks. While it requires a significant initial investment and present challenges, the long-term advantages typically justify the upfront costs. This helps them remain competitive, flexible, and cost-effective in a fast-changing market.

By strategically upgrading their systems, banks can significantly lower their TCO, improve operational efficiency, and meet the demands of today’s digitally-savvy customers. Embrace modernization today for a more resilient and cost-efficient future.

Author Bio:

Raj Kumar is working in a pre-sales department at Kumaran Systems, a legacy app modernization solution provider specializing in helping financial companies like banks and insurance firms modernize their mission-critical applications with the latest technologies.