For the South African banking, financial services, and insurance (BFSI) industry, cloud adoption promises to be a game-changer. Cloud offers greater scalability, agility, flexibility, and speed in meeting evolving customer demands in the fast-paced financial services business environment while also paving the way for rapid digital transformation.
Unsurprisingly, adoption is on the rise—the South African cloud market is estimated to grow at a compounded annual growth rate of 26% to R113 billion ($6.38 billion) by 2028. And the financial services sector is no exception to this trend—a 2024 McKinsey Digital survey reveals that financial services organizations in Africa expect an average increase of 26% in public and private cloud adoption by 2025, the highest among all the sectors surveyed.
Despite the promise of cloud adoption, achieving a smooth transition has not been not easy. “BFSI firms in South Africa are moving to the cloud to meet customer demand for innovative digital offerings and personalized service as well as drive business growth. However, legacy mainframe systems are often a roadblock, delaying cloud benefits by hindering digital transformation and compromising their ability to innovate and quickly launch new offerings,” opines <Vinay Singhvi, Vice President, Business Unit Head, BFSI Africa, UK & Ireland>, at TCS.
Undeniably, mainframe applications are exceptionally reliable, delivering seamless customer service without disruption. But with more and more BFSI firms in South Africa looking at digital adoption and hyper-personalization, shifting to the cloud is more urgent need and mainframe modernization is no longer optional.
GenAI: A modernization accelerator
Deeply embedded in the operations of BFSI firms, legacy systems are the backbone of mission-critical functions such as transaction processing, insurance claims processing, financial advisory, customer account management and risk and compliance. Clunky and inflexible legacy systems make designing new products and services or upgrading existing ones to enhance customer experience and adding new business capabilities time-consuming and costly. The sheer complexity of legacy applications makes migration to the cloud and integration with modern cloud service platforms extremely challenging.
New entrants have been quick to take advantage – being agile born and cloud native is enabling them with innovative digital products at lower price points, delivering superior experience and capturing customer mindshare. This underscores the urgent need for traditional BFSI firms to modernize their legacy IT infrastructure.
Despite their intense desire to revamp legacy systems and become cloud-ready, modernizing the core poses complex challenges for BFSI firms. And here’s where generative artificial intelligence (GenAI) can help. “In South Africa, digital is rapidly becoming default, and an IT infrastructure that can adapt to evolving digital demands is critical. GenAI powered tools enable accurate understanding of existing systems, capture existing tacit knowledge in the enterprise, new technology integration, and architecture design of the future, facilitating faster and cost-effective modernization, laying the foundation for a swift and successful migration to the cloud,” commented < Vinay Singhvi, Vice President, Business Unit Head, BFSI Africa, UK & Ireland>, at TCS >.
New GenAI tools can analyze mainframe source code and generate corresponding destination code with the ability to enable the same functionality. They can also analyze legacy code, extract the business rules, and generate the target code using GitHub Copilot or Amazon CodeWhisperer. Furthermore, GenAI tools generate code that is of better quality and maintainability, surpassing traditional code refactoring approaches and tools.
The icing on the cake is that GenAI can achieve all this with minimal inputs from domain and subject matter experts. GenAI is fast emerging as a modernization accelerator.
Look out for risks
As with any rapidly evolving technology, embracing GenAI to modernize legacy systems comes with its own pitfalls. Powered by large language models (LLMs) that are inherently non-deterministic in nature, GenAI often produces different outputs for the same prompt. It also generates irrelevant content and is susceptible to hallucinations. The limited context window of LLMs poses another difficulty. This means that LLMs can consider only a limited amount of information from the input text when generating the output. Regulatory mandates around explainability, traceability, ownership, and auditability add another dimension, further complicating the situation.
Newer version of LLMs can enable BFSI firms to effectively tackle the challenges in mainframe modernization. LLMs bolstered by retrieval-augmented generation (RAG) frameworks help mitigate issues around hallucinations and non-deterministic behavior by injecting context into the GenAI tool, enhancing the accuracy and relevance of the output. Additionally, the latest GenAI models leverage larger context lengths to improve the quality of the output, which is particularly useful when dealing with complex, poorly documented or outdated legacy systems, where understanding the code’s functionality is crucial for modernization. Establishing robust governance frameworks and guardrails can help ensure compliance with regulatory requirements. GenAI tools, in conjunction with human in the loop providing the deep domain and contextual knowledge becomes an invaluable tool for modernization efforts.
On balance, the benefits of leveraging GenAI for legacy modernization far outweigh the difficulties. GenAI tools equipped with new capabilities result in faster upgrades at lower risks. Another key benefit is around costs—a Gartner report predicts that using GenAI tools can reduce legacy modernization costs by a whopping 70%!
In a nutshell
Rapid innovation, new digital products, and context-aware personalization are a must for exceptional customer experience—a key differentiator in the commoditized BFSI industry. To capitalize on abundant digital demand and unlock greater business value across the financial services value chain, a move to agile, scalable, and flexible cloud platforms is imperative. Capturing the full value of cloud will necessitate a revamp of legacy mainframe infrastructure, a complex, risky, and cost intensive exercise. GenAI technology offers a way to accelerate mainframe modernization, enabling BFSI firms to smooth the path for quick cloud adoption, an essential prerequisite to thrive in today’s high-speed digital world.
