In today’s digital-first economy, banks are under immense pressure to modernise. Customers expect seamless, secure, and highly personalised services. They now compare their banking experience not just to other banks, but to the best digital services in their lives. Yet, despite increasing IT budgets, many banks are stuck in a cycle of maintaining aging systems […]
In today’s digital-first economy, banks are under immense pressure to modernise. Customers expect seamless, secure, and highly personalised services. They now compare their banking experience not just to other banks, but to the best digital services in their lives. Yet, despite increasing IT budgets, many banks are stuck in a cycle of maintaining aging systems rather than unlocking innovation.
This paradox is undermining progress. While investment in technology is on the rise, McKinsey estimates 70% of banks’ IT budgets are consumed by supporting legacy infrastructure. My firm estimates that, globally, this amounts to more than $45 billion annually. That’s money spent just to keep the lights on.
The real cost of legacy
Legacy systems don’t just consume resources, they hold banks back. They slow innovation, increase risk, and limit agility. As technology evolves, the gap between what banks want to deliver and what their infrastructure can support continues to widen.
These systems, often decades old, were not built for today’s real-time, always-on digital economy. They’re hard to integrate, harder to scale, and increasingly difficult to maintain, especially as with an aging workforce familiar with these older technologies approaching retirement.
This leaves many banks in a tough spot: train new staff on outdated platforms or make the leap toward modernisation.
Bank leaders recognise that standing still is no longer safe. Regulatory pressure, cyber threats, and shifting customer expectations demand a more agile and responsive infrastructure.
Economic volatility has also sharpened the focus on technology investments. Banks are re-evaluating how they allocate resources, and prioritising platforms that offer faster time to value, lower cost of ownership, and scalable performance.
Transformation may seem risky, but maintaining the status quo is a greater risk. Legacy systems introduce vulnerabilities, increase operational complexity, and divert resources from strategic growth areas.
Replacing the engine while flying the plane
Modernising core banking has often been described as the financial equivalent of open-heart surgery. A better analogy might be replacing the engine while flying the plane.
That’s why many banks are understandably cautious. In fact, our study with Hanover Research across over 400 banks shows that reliability (86%) ranks higher than cost (81%) or even speed of implementation (74%) when banks evaluate new financial software. Stability is non-negotiable.
For banking leaders, this presents a strategic dilemma: how to achieve transformation without disrupting operations or eroding trust.
There’s not a one size fits all. Large banks often have the scale to pursue targeted point solutions, supported by in-house tech teams. They look for specialised capabilities to unlock new markets or enhance existing services. These could be in areas like Digital, Payments or Financial Crime Mitigation.
Mid-size and regional banks are increasingly focused on modular modernisation, choosing core solutions that let them progressively modernise key areas like commercial lending or Retail Accounts.
These banks also value solutions that run across cloud, on-premises and SaaS environments. This allows for incremental upgrades, lowering implementation risk and operational disruption.
Smaller banks and credit unions typically seek a comprehensive core banking suite and an experienced, trusted partner. SaaS is an increasingly preferred option as it empowers those banks with scale and innovation, with the freedom to focus on growth, not infrastructure.
Era of AI innovation
As new technologies like generative AI reshape the industry, the need for a modern core becomes even more urgent. AI can deliver insights, automate operations, and personalise the customer journey, but only if banks have the infrastructure to support it.
Modern core banking solutions provide the foundation to harness these technologies safely and at scale. They offer the agility to innovate faster, integrate more easily, and scale more efficiently.
The path to modernisation is not easy, but the rewards are worth it. I see banks reclaiming their tech budgets and turning them into engines of innovation.
JP Morgan, Wells Fargo, Citigroup lead AI hiring surge
Banks must make smart, strategic decisions about where and how they invest in technology. The most successful are doing so with clear priorities, flexible solutions, and trusted partners who have experience driving core transformations.
Because in today’s digital economy, it’s not just about surviving the present—it’s about building the agility to thrive in the future.
