Banks Struggle with COBOL Legacy Systems as Blockchain Emerges

Banks around the world are grappling with the challenge of modernizing their outdated systems, which are still largely reliant on COBOL, a programming language that has been in use since the 1960s. This reliance on legacy code has created significant inefficiencies and risks, as evidenced by the 2017 incident involving the British bank TSB. When TSB attempted to migrate its COBOL systems to a modern Java-based platform, the transition failed, leaving millions of customers without access to their accounts for nearly a year and costing the bank over £400 million in compensation and fines.

The banking industry's dependence on COBOL is extensive, with a significant portion of global banking systems still running on this outdated technology. The risk of system failures and the inability to turn off these critical systems without causing disruption have left banks feeling "hostage" to their legacy code. This situation has led to a search for alternative solutions that can bypass these outdated systems, with only modest success so far.

One potential solution that has emerged is the use of blockchain technology. JPMorgan's deposit coin, JPMD, is an example of how blockchain can be used to move deposits more efficiently. By allowing whitelisted customers to move deposits held with JPMorgan on Coinbase’s BASE blockchain, JPMD aims to reduce the complexity and cost associated with traditional banking systems. Similarly, Coinbase has helped Shopify build an onchain payments protocol that uses smart contracts to perform tasks that previously required millions of lines of offchain code, enabling more efficient and global money transfers.

The potential of blockchain technology to revolutionize the banking industry is not just a theoretical concept. Traditional financial institutions, or TradFi, are taking notice, as evidenced by the recent slump in shares of Visa and Mastercard on fears that stablecoins could disrupt the payments industry. Additionally, the fintech giant Fiserv has announced plans to issue its own stablecoin and launch a Solana-based payments platform, which could help smaller banks bypass their COBOL-based systems and move towards more modern and efficient solutions.

While the transition to blockchain technology will not happen overnight, the potential for stablecoins and deposit tokens to make COBOL obsolete is significant. By providing a more efficient and cost-effective way to move money, blockchain technology could transform the global economy in the same way that the internet revolutionized the newspaper industry and email replaced traditional mail services. As banks continue to explore these new technologies, the future of banking may finally be free from the constraints of COBOL.