Addressing Technical Debt in Financial Services
Learn how to manage technical debt in the financial services industry to get the full benefits from new technologies and drive transformation.
Why does managing technical debt matter?
Technical debt is not just an IT concern — it's a business imperative. As financial services institutions navigate complex regulatory environments and rapidly evolving technologies, the burden of outdated systems and processes can significantly impair their ability to innovate, compete and serve their customers. Technical debt in finance goes beyond mere inconvenience; it poses real risks to operational stability, cybersecurity and regulatory compliance. It can slow down the adoption of crucial technologies like AI and cloud computing, hindering an institution's ability to leverage data for strategic decisions. Moreover, in an industry where system failures can have immediate and far-reaching consequences, technical debt directly impacts operational resilience and customer trust.
Watch this 30-minute episode of WWT Experts, "Rethinking How Financial Institutions Manage Technical Debt." In this episode of WWT Experts, former Bank of America CTO and WWT consultant David Reilly talks with senior director Mark Wall about how IT leaders of financial institutions can begin to conquer technical debt by making it an organizational priority.
Defining the challenges
Financial services organizations today face a common challenge: managing a heterogeneous environment filled with mixed technologies and systems. These complex environments, characterized by their inherent variability, complicate operations and increase costs. Additionally, the more versions of systems an organization has that cannot be rationalized or consolidated, the larger the surface attack area the cyber team has to protect, the more patching that has to be done, and the more risk the organization runs in the environment. This is particularly critical in regulated industries, like financial services, where compliance and security are paramount.
While most organizations are effective at implementing new systems to solve problems or introduce new capabilities, they often struggle with fully retiring the old systems. This challenge is especially pronounced when a feature in the legacy system remains critical to daily operations. That last piece of functionality can delay the final transition, preventing teams from fully decommissioning outdated platforms. As a result, organizations face inefficiencies, higher maintenance costs and integration issues between old and new systems, further complicating already complex environments. Ultimately, the challenge isn't just adopting new technologies, but managing the complete transition from old to new.
Many financial institutions are already making progress on this front.
WWT worked with a retail bank to successfully transform its legacy infrastructure to create a more resilient and agile environment. By modernizing outdated systems, the bank mitigated cyber threats and effectively addressed technical debt, leading to enhanced operational efficiency and security.
Read the case study: Retail Banking: Transforming Legacy Infrastructure
When it comes to tackling technical debt, there are four key components to consider:
- Asset inventory: A comprehensive and accurate asset inventory is essential for detailing all hardware and software on the network. Discrepancies between systems, vendors and internal spreadsheets can make compiling a reliable inventory difficult. By consolidating this data, organizations can make informed decisions, manage risk, control spending and understand usage, ultimately enhancing IT efficiency and reducing business risks.
- Lifecycle management: Understanding when assets reach the end of their life and are no longer supported is critical, as it allows organizations to fully comprehend the risks they are facing. Without a calendar integrated with the asset inventory, such understanding is incomplete.
- Technology utilization: Assessing how the business is using technology enables organizations to prioritize addressing technical debt based on the most critical business processes that these systems support.
- Tech debt management: Engage in candid discussions across the organization to define a declared risk appetite, which is a clear understanding of how much technical debt the organization is willing to carry. While the instinctive answer might be "none," the reality is that resources are limited. Establishing this threshold helps teams make informed trade-offs and prioritize effectively. It's important to revisit and report on this regularly to maintain visibility and accountability so that technical debt remains within acceptable bounds.
This approach has proven successful in other institutions facing complex modernization efforts.
We worked with another financial institution to modernize its core banking systems and tackle the challenges of managing complex data environments. Through automation and strategic modernization, the institution reduced technical debt, thereby improving system reliability and operational excellence.
Learn more: Modernizing Financial Institutions Data in Private Cloud
The journey to address technical debt may not be easy, but the potential rewards are immense. Organizations that embrace this transformation will unlock new avenues for innovation, enhance operational efficiency and strengthen their competitive edge in an increasingly dynamic market. However, before you can tackle this challenge, you'll need to align the business and IT initiatives.
Leadership commitment
Leadership plays a crucial role in addressing technical debt within an organization. Often, remediating legacy technology is seen as a secondary issue, overshadowed by the excitement of adopting new technologies. This can make it difficult to secure the necessary resources and support to address the problem. However, this mindset needs to shift, and the responsibility lies with the organization's leaders.
By directly addressing the technical debt challenge and making it a priority, leaders can open the door to more intentional dialogues about risk management and the acceptable levels of tech debt the organization is willing to accept. This top-down approach is crucial in driving the cultural shift necessary to tackle the technical debt challenge effectively.
But how should you frame this conversation to get the business leaders to effectively understand?
Having the tech debt conversation
To drive business outcomes, it's essential to start the conversation by taking strategic and calculated risks, backed by data. Data points are crucial in illustrating the risks of tech debt to the business side by quantifying the cost of inaction versus the cost of taking action. By considering factors such as the number of incidents, the cost of outages, the capital required for investment and the return on investment, you can make a compelling case for addressing tech debt.
Focus on these three areas to prepare for a successful conversation about technical debt:
- Inventory insights: Understand the organization's assets and determine whether information needs to be discovered or consolidated.
- Financials: Assess what the organization is paying, the costs involved and its overall spending.
- Analytics: Analyze what is actually happening and how much is in use.
When these components are combined, they form a comprehensive "data cube," enabling the use of AI and actionable insights for business reporting. This holistic approach provides a clear and data-driven foundation for discussing the importance of remediating technical debt.
Collaboration with key internal partners is also essential when managing aging assets. The CIO or head of the application development team can offer valuable insights into enhancing end-of-life remediation code, while the CISO provides expertise on the associated risks and vulnerabilities in varied environments. Additionally, risk and audit teams provide transparency and visibility concerning these risks.
Think beyond the budgeting process
While the budgeting process is a time for financial services organizations to have focused discussions on technical debt and secure the necessary resources for remediation efforts, the dialogue around remediating technical debt should not be limited to this period alone. It's important to be direct with business partners about the significance of addressing tech debt. Simply ignoring it can lead to outages and increased risk, and the organization is effectively choosing to accept more unreliability and fragility in the environment.
A three-year view of the organization's end-of-life systems can help justify necessary investments and demonstrate a strategic, proactive approach to managing technical debt. By initiating these conversations outside of the formal budgeting process, organizations can create a more focused, less contentious environment — one where priorities are shaped without the pressure of competing for limited funds. This groundwork lays the foundation so that, when budget season arrives, the case for technical debt remediation is already well-articulated and aligned with broader goals. Aligning the budgeting process with this multi-year plan keeps remediation efforts visible and prioritized, especially for high-risk technologies supporting critical business processes.
Furthermore, when organizations undertake projects or programs to upgrade their infrastructure or applications, they have an opportunity to address the surrounding technical debt by investing additional resources to remediate it comprehensively. Leaders should remain cognizant during these initiatives, as they offer strategic moments to allocate resources toward managing and reducing technical debt over time.
Measuring the success of technical debt remediation
When addressing technical debt, financial services organizations must adopt a data-driven and business-aligned approach to measuring the success of their efforts. This involves building a comprehensive data model that tracks key metrics across multiple dimensions.
Metrics and data-driven insights
At the core of this approach is the ability to measure the impact of technical debt remediation initiatives. This includes tracking cost savings, incident reduction and operational components such as change availability and application dependencies. By consolidating these data points, leaders can gain a clear understanding of the tangible benefits of their efforts.
Linking to business outcomes
Crucially, the metrics must be tied directly to the organization's business objectives. This means quantifying the potential impact of technical debt, such as the risk of outages and the opportunity cost of not being able to adopt new technologies. By framing the discussion in terms of business impact, leaders can make a more compelling case for investment in technical debt remediation.
Mapping to critical applications
Another essential element is mapping the organization's technical debt to the underlying hardware and software supporting its most critical business processes. This visibility allows leaders to prioritize remediation efforts based on the risk of running end-of-life systems for the most important applications.
Ultimately, the success of technical debt remediation efforts hinges on the organization's ability to prove the impact of its work. By demonstrating the financial and operational benefits of addressing technical debt, leaders can justify the required resources and showcase the value of their efforts to the broader business.
Finding the right partner
By prioritizing the management of technical debt, financial institutions can enhance their agility, reduce operational risks, improve customer experience and position themselves to capitalize on emerging technologies. In essence, tackling technical debt allows financial services organizations to build a foundation for future innovation and success in an increasingly digital financial landscape.
It can be hard to tackle tech debt alone. A partner who incorporates data science and correlation metrics is critical. This includes understanding change window availability, utilization and dependencies from critical applications to specific assets. A partner with a comprehensive view — and one with an understanding of heterogeneous environments and strong OEM relationships — will enhance operational efficiency and future-proof your business.
This report may not be copied, reproduced, distributed, republished, downloaded, displayed, posted or transmitted in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, recording, or otherwise, without the prior express written permission of WWT Research.
This report is compiled from surveys WWT Research conducts with clients and internal experts; conversations and engagements with current and prospective clients, partners and original equipment manufacturers (OEMs); and knowledge acquired through lab work in the Advanced Technology Center and real-world client project experience. WWT provides this report "AS-IS" and disclaims all warranties as to the accuracy, completeness or adequacy of the information.