There have been many significant technology-driven changes in the financial sector over the past 50 years. For example, with the global spread of online banking, the use of physical remittance slips declined sharply. Mobile banking is causing many banks to significantly reduce or even eliminate their branches. And digital self-service options allow customers to invest their money in the capital markets at any time of day. But there's one habit most banks and insurance companies can't seem to break: the mainframe.

"The big iron" is still the pacemaker that keeps an entire industry running, whether it's public, cooperative or private banks. Credit card payments, for example, would be unthinkable without this technology. 90% of these transactions are handled by mainframes, up to 19 billion per system, every day. But why do so many financial service providers find it difficult to abandon these "steam engines of IT"?

Why do banks persist with mainframes?
One important reason is the massive investment in this legacy technology. The industry has purchased expensive mainframes for decades, written many millions of lines of program code, and trained staff to operate and modernize the systems. Many companies are reluctant to accept these expenditures as sunk costs - even though maintaining such end-of-lifecycle technologies now consumes a large portion of IT budgets.

Another factor that keeps banks running on mainframes is the complexity of the processes. Since these largely involve business-critical workloads, many organizations resist migrating their mainframe applications for fear of disruption or delay. As a result, many banks elect to continue using their mainframe systems to support their existing data and applications.

Familiarity, of course, also plays a major role. The "computing dinosaurs" have established themselves wherever business-critical processes need to be handled securely and reliably over the long term. And for such systems, perhaps more than ever, the "never change a running system" principle applies.

The call for mainframe modernization
Nevertheless, the number of decision-makers wishing to free themselves from dependency on this insular technology is growing. They pursue the vision of an IT landscape that is as uniform and standardized as possible and can be managed efficiently. The black monoliths represent an enormous stumbling block on the way to this goal. Maintaining decades-old code with antiquated programming languages is a huge technical debt and a time-consuming challenge mastered by fewer and fewer experts.

Sticking with mainframes also exposes companies to business risks. Many traditional banks are already unable to compete in terms of agility, scalability and customization with FinTechs and neo-banks that have hosted confidential and business-critical processes in a cloud environment from the outset. A gap that will widen if banks deprive themselves of the opportunity to benefit from modern technologies such as AI or advanced analytics by remaining on the mainframe.

Daring to take the leap into the cloud
Mainframes are clearly not a future-proof technology. The cloud, in contrast, offers companies significant advantages to mitigate looming risks while simultaneously unleashing urgently needed innovation and agility potential. Since the cloud infrastructure is based on open standards and APIs, developers can quickly and easily access the latest technologies and develop and deploy applications faster.

The cloud also offers high scalability, allowing companies to quickly and easily add or remove resources to adapt to changing requirements. For example, peak month-end processing loads would no longer need to run through the mainframe but can be flexibly purchased as needed. Compliance is also much easier to achieve in the cloud than in a mainframe environment. Azure, for example, offers various dashboards that allow financial institutions to perform real-time analytics in seconds that meet international standards. In the event of a balance sheet audit, such features can be a great advantage.

Another aspect that is often forgotten: Sustainability. Cloud computing is significantly more CO₂ and energy efficient than local mainframes. While the carbon footprint in a mainframe environment is often difficult or impossible to determine, a cloud platform like Azure provides transparent insights and also demonstrates a clear commitment to Net Zero.

Above all, however, the costs clearly speak in favor of the cloud and against the mainframe. In the area of security, for example, banks can benefit from the billions invested by cloud providers and use an infrastructure whose standard they could never build themselves. On the mainframe, updating database cycles has always been an interminable process that consumed a lot of time and money. With the cloud, companies can now perform these updates much more quickly and cost-effectively.

How to begin the mainframe modernization journey
Mainframe users must face the fact that they cannot upgrade a legacy system to a contemporary technology. At some point, the leap to a new technology will become inevitable - for example, because hardware and software are no longer supported or new regulations require a change. Companies are therefore well advised to thoroughly consider the options for mainframe modernization before external factors force them to do so.

Avanade is a highly recommended and top-rated partner for this purpose. Our experts are familiar with both the legacy mainframe world and the Azure cloud, and have wide-ranging experience in performing migrations in the banking and insurance sectors. We offer customers a proven and clearly defined approach: from the initial inventory to the final handover. What's more, we know that a mainframe modernization is not just a technology project: When your data moves to the cloud, we also take your employees with us on this journey - through change management that includes training, knowledge transfer and much more.

Would you like to learn more about our approach to mainframe modernization? Then register for our upcoming mainframe webinar on May 11! Our experts will describe the steps of our approach, present a case study from the financial sector and answer specific questions.