Outdated technologies are holding back mutuals from innovating and becoming leaner and more efficient. Some of these systems date-back decades. Given the future of building societies hinges on their ability to adapt to a digital world, legacy systems are a massive barrier to their progress. Addressing the technical debt mutuals have accrued over the years is therefore essential for the sector’s long-term success.
This is why building societies must now start to view digital transformation not as a one-off project to be endured – but as an ongoing journey to stay competitive in a sector facing intense pressure from fintechs and challenger banks.
Legacy systems sit at the heart of many of the challenges that building societies face.
These include financial constraints where budgets are stretched thin by maintenance costs – many societies spend a non-material portion of their IT resources just keeping old platforms on life support, diverting funds from new initiatives.
Risk and regulation add another layer with legacy systems struggling to meet evolving standards like the Consumer Duty – which demands robust data handling and fair outcomes.
Legacy systems are as significant a risk as financial crime, the adoption of new technologies, fraud, third-party operational resilience or cyber vulnerabilities. In our experience, these risks are compounded when societies delay upgrading systems – leaving mutuals exposed to operational failures and regulatory penalties.
Building societies need to grasp the nettle.
Mutuals must prioritise online and mobile platforms. That will help them meet member expectations for seamless digital experiences. Data and analytics can drive informed decision-making, providing insights into customer behaviour and market trends. AI can enable societies to automate processes and enhance services.
We have supported building societies with migration services, helping clients shift residential mortgage portfolios from legacy systems to modern compliant solutions, managing billions in assets – without disruption. One society we worked with transferred 60,000 accounts seamlessly, accelerating their ability to offer flexible products.
You can’t unlock these opportunities without addressing legacy systems. Technical debt accumulates when patches and workarounds pile-up, leading to inefficiency and higher costs over time mentioned earlier. Our research into society efficiency using metrics like assets per employee reveals stark differences in how different mutuals are tackling the problem. Yorkshire Building Society has invested in its systems including in digital tools that make it a more efficient, modern mutual. In contrast, other societies are still clinging to legacy tech. Their productivity ratios are lower, highlighting quite how urgently they need to embrace change.
Where to start? Societies should begin by assessing their legacy estate to prioritise high-impact areas. Most should then look at adopting cloud core systems as a service. That eliminates the burden of on-premise maintenance.
This approach can transform operations reducing downtime and enable scalability. Societies can then integrate AI more effectively, using it for tasks like vulnerability detection in customer calls – or predictive analytics for default risks. Artificial intelligence is no longer a nice to have after all.
At Target Group, we have implemented AI-powered solutions like voice analytics on platforms such as NICE CXone. These tools transcribe calls in real time flag sentiment and ensure compliance by creating audit trails. For building societies this means turning a regulatory requirement into a competitive advantage. AI can spot phrases indicating hardship and prompt forbearance options driving better member outcomes. Without modernising legacy systems, however, data silos persist, hindering AI's effectiveness. We have start with proof-of-concept tests to identify gaps ensuring the thoughtful, secure deployment of AI. Guardrails are vital here, including bias mitigation through algorithm adjustments – as well as data privacy measures like encryption and audits. This balances innovation with responsibility.
The problem is that societies with legacy infrastructure are struggling to harness the opportunities that AI offers.
Cybersecurity ties directly to legacy modernisation. Cybersecurity threats loom large, too. Outdated systems lack the built-in protection mutuals need to guard against sophisticated attacks. Talent shortages exacerbate the issue. Old systems often lack the resilience needed for third-party integrations increasing vulnerability to breaches. BPO services should incorporate robust protocols helping societies build operational resilience. By outsourcing routine tasks, societies can free-up their human resources to focus on strategic goals. Financial constraints can be eased through phased migrations where a third party can handle the heavy lifting minimising upfront costs. Talent challenges diminish as our managed services provide access to experts without the need for in-house hires.
Building societies have a unique member-focused ethos that sets them apart. By tackling legacy systems head-on, they can protect this while adapting to the modern digital demands of the regulator and their members. The journey requires commitment, certainly. But the rewards include enhanced efficiency reduced risks and stronger member loyalty. Now is the time to act. Mutuals must modernise to secure a thriving future. The societies that delay risk falling behind in a competitive landscape. With the right support however they can lead the way driving sustainable success for years to come.
