What happened to pilot programs?

When I started in this industry, pilots were all the rage. A pilot program is a small-scale, preliminary implementation of a new or replacement system, product, or process. It’s designed to test feasibility, performance, and potential impact in a real-world environment before committing to a full-scale rollout. Unlike a proof of concept (PoC), which is typically limited to demonstrating technical viability in a controlled setting, a pilot is operational. It engages real users, processes real data, and delivers measurable outcomes. This distinction is critical, especially in banking, where technology migrations are long, complex, and fraught with risk. A well-executed pilot can surface issues early, validate assumptions, and build confidence. Given these benefits, I am curious why we don’t hear about them much anymore.

We’d all agree that a bank or credit union will spend months to years discussing and evaluating potential solutions, followed by an extended implementation phase that often leads to a “rip and replace” event. In with the new and out with the old, all over a weekend. Then, the institution will spend additional months (or years) resolving disruptions, data inconsistencies, and operational inefficiencies. These challenges not only inflate costs and timelines but also expose banks and credit unions to significant risks, including business downtime and failed transformations. In contrast, pilot programs offer a more agile alternative by enabling small-scale testing of new technologies within the migration process. This approach allows institutions to validate solutions in real-world scenarios, mitigate risks, and iterate before committing to full-scale deployment, ultimately streamlining the entire migration lifecycle.

I (and many others) believe the traditional rip and replace model, akin to a high-stakes “heart transplant” for banking operations, is outdated and full of pitfalls. Key challenges include:

• Banks and credit unions spend significant time evaluating vendors and solutions, then face lengthy implementations that can disrupt their core operations.
  
  

• No conversion is perfect; data migration issues, revenue losses from downtime, and customer service interruptions are common.
  
  
• The aftermath involves prolonged efforts to address inefficiencies, such as reconciling legacy data or retraining staff, exacerbating costs and delaying ROI.
  
  

These issues highlight the need for alternatives that avoid wholesale overhauls by incrementally updating systems while maintaining business continuity.

A pilot program offers several strategic benefits when applied to implementing or replacing technologies, particularly in transitioning to modern, cloud-based systems. First, it helps prove the business case by quantifying tangible benefits such as cost savings, operational efficiency, and improved compliance. For instance, a pilot can demonstrate the ROI of migrating to a cloud-based lending platform through faster loan processing and reduced storage expenses.

It also serves to stress-test fundamental processes, ensuring that tools align with existing workflows like data classification and retention schedules. This is especially critical during core system migrations, where regulatory compliance and secure customer data are paramount. Additionally, pilot programs are valuable for evaluating technologies, allowing banks and credit unions to assess the security, scalability, and disaster recovery capabilities of new platforms, such as validating whether a cloud solution can handle high transaction volumes during payment system upgrades.

Another key benefit is the ability to fine-tune processes. By identifying inefficiencies and errors early, banks and credit unions can optimize workflows like fraud detection during migrations, reducing manual intervention and improving real-time monitoring. Pilot programs also help in evaluating resource requirements, such as IT infrastructure, staffing, and training needs, ensuring that the organization is adequately prepared for a full-scale transition.

From a change management perspective, pilot programs foster staff engagement and buy-in. By involving employees early and showcasing quick wins, financial institutions can reduce resistance and build internal advocates for new digital tools. This is particularly effective compared to large-scale, abrupt changes that often face pushback.

Moreover, pilot programs are cost-effective and fast. This allows banks and credit unions to test new systems with minimal disruption and investment. They also play a crucial role in risk reduction, identifying potential issues early and avoiding the high failure rates associated with full-scale system overhauls, especially in mission-critical areas like core banking.

Importantly, a successful pilot can also serve as the foundation for a broader contractual agreement. If the pilot meets its success criteria, it often leads to a formal contract where pricing, scope, and service levels can be negotiated based on real-world performance. In many cases, the cost of the pilot is credited toward the overall agreement, effectively reducing the total investment required for full implementation. This approach not only incentivizes vendors to deliver strong results during the pilot but also provides financial flexibility and assurance to the bank or credit union, making the transition more strategic and cost-efficient.

In an industry where the stakes are high and the margin for error is slim, pilot programs offer a practical, proven alternative to the traditional rip and replace model. They allow financial institutions to move forward with confidence, minimizing disruption, and building internal momentum for change. Rather than betting everything on a single weekend cutover, pilot programs create a path for measured progress, smarter investments, and sustainable transformation.

It’s time to bring pilots back into the spotlight, not as a fallback, but as a strategic tool for implementation. In my next article, I will discuss how to implement a pilot program.