Building the bank of tomorrow: Strategies for operational resilience and digital transformation

European banks must modernise fast—embracing digital transformation, regulatory shifts, and fintech partnerships to stay competitive and resilient.

European financial institutions stand at a critical juncture. New regulations, razor-thin margins, and surging consumer demand for frictionless, instant services are reshaping the rules of engagement. The challenge is more than a matter of compliance—there is a fierce race to stay relevant and operationally resilient. Below is a deep dive into the core elements fueling this transformation and how forward-thinking banks can avoid falling behind.

European market landscape

Europe’s financial sector spans multiple markets, each governed by local regulations and shaped by distinct consumer habits. Yet there is a common trend coursing through all: the unstoppable rise of digital-first experiences. Based on the  European Central Bank’s revealed statistics for 2024, the total number of digital payments in the euro area in the first half of 2024 increased by 7.4% to 72.1 billion compared with the first half of 2023, with the total value rising by 1.9% to €113.5 trillion, signalling that the consumer looks for convenient, quick ways to make interactions such as a tap of a card, QR scan, P2P transfers. Is the industry prepared to handle the growth in digital-first payments, or will slow adopters be left scrambling to retrofit legacy infrastructures?

Despite the overall understanding that modernisation is essential, legacy technologies hold many institutions back. Challenger banks and fintechs thrive by offering frictionless user journeys and instant payments, while incumbents often struggle to integrate new solutions without disrupting existing systems.

Looking at the examples of major European players such as BNP Paribas, Deutsche Bank, Santander, Barclays, ING and many others, we see major giants who continue to dominate in terms of assets, retail networks, and corporate services, yet their size often translates to complex legacy infrastructures that pose integration challenges. In contrast, challenger banks (Revolut, N26, Monzo, Bunq) are seen to have rapid expansion due to the provision of user-centric approaches, utilising open APIs and relying on modern services. Their advantage lies in cloud-native platforms and partnering with technology-specialised issuing and acquiring processors ready to enable open-baking, respond quickly to new regulations, and possess new modern features offered through digital platforms and SaaS solutions.

Digitalisation driving regulations

European banking regulations are no longer polite suggestions; they’re potential existential threats to laggards. PSD2 mandated open APIs, spurring a surge of third-party fintech services and new revenue streams. PSD3 promises tighter consumer protections and even more advanced technical standards, amplifying the push for digital transformation.

Meanwhile, the European Central Bank continues to emphasise real-time and instant payments. From settlement infrastructure to cybersecurity, there is little room for banks to procrastinate.

If PSD2 and PSD3 light the fire, the upcoming necessary migration of ISO 20022 pours gasoline on it. In line with SWIFT and ECB timelines by November, a considerable portion of European cross-border and certain domestic payments must adopt ISO 20022 messaging standards. This shift introduces richer data fields, advanced compliance checks, and smoother STP. The November deadline marks a crucial milestone, after which many European payment flows must conform to the new standard. Banks that miss this window risk service disruptions, reputational damage, and potential penalties.

For banks immersed in mainframe-based legacy systems, meeting this deadline can feel like changing an aeroplane engine mid-flight. Failure risks more than just financial penalties; it can tarnish a bank’s reputation and open the door for more agile competitors to seize market share. Conversely, banks that have begun migration early can stay ahead of competitors by offering more transparent, data-rich payment services.

While ISO 20022 compliance could be treated as a standalone project, many banks see it as an opportunity to accelerate broader digital transformation. By modernising core payment platforms in tandem with ISO 20022, banks can adopt new fintech solutions, deploy API-based services, and enhance resilience to outages or cyber threats.

Why legacy will stay in the past

Traditional core platforms were built to handle the financial realities of decades past: batch processing, siloed data structures, and minimal external integrations. They were built to work. And they worked. Until they no longer solve the current problems. What happens when “functional” is no longer enough? Legacy systems may still execute basic tasks effectively but are painfully slow to adapt to new regulations or integrate with API-driven services. Now, bank leadership is facing a critical and fast decision: where to start the upgrade first. Integrating cloud or API-based technologies often requires costly, multi-year transformation projects—creating operational and strategic hurdles.

Challenger banks and fintechs face no such burden. The difference in operational efficiency and compliance agility is noticeable. Incumbent banks must choose how to modernise—build an in-house solution, buy an existing platform, or partner with a technology provider. Each path has pros and cons, from cost to control, yet all reflect a shared realisation: the old ways won’t survive the next five years. There are several models:

• SaaS-based platforms: Increasingly, European banks opt for SaaS solutions for core functionalities like payments, digital banking and wallets, fraud management and customer engagement. Rather than building solutions from scratch, many incumbents partner with established tech providers for specialised services. Benefits include regular updates, cost-efficiency, scalability, and real-time data analytics access—vital features for modern banking.
• In-house development: Larger banks with substantial resources may opt for in-house development or deployment of ready-made platforms from technological partners, precisely tailoring solutions to their business models. However, the time and cost can be prohibitive, especially for mid-sized or smaller institutions. Despite the obvious constraints, in-house development brings more control over one’s own data, which is frequently favoured among large bank players.
• Managed services: Some banks purchase core components and integrate them into existing systems with the help of technology experts. The approach balances control over the technology stack with faster deployment compared to entirely in-house development. It allows banks to utilise experts who know the solution or platform configurations.

Steps for digital transformation

Embarking on a digital transformation may sound challenging, especially for institutions burdened by layers of legacy infrastructure. Yet the path toward operational excellence and competitive advantage becomes far clearer once you break down the process into manageable stages.

Identification of critical points of friction within current systems. This includes mapping out dependencies, data flows, and vulnerabilities to outages. Banks should determine whether their primary aim is cost reduction, customer experience enhancement, compliance, or expansion into new markets.

Banks can focus on modular upgrades rather than attempting a ‘big bang’ overhaul, starting with front-end improvements (e.g., customer-facing apps) before tackling back office systems, or vice versa, depending on the bank’s strategic priorities.

The next step for financial institutions is identifying the right technology solutions to support digital transformation. Modern payment processing platforms, digital banking solutions, and ecosystem integration tools can help accelerate transformation, enhance compliance, and leverage the full capabilities of cloud-native technology. Several European banks, including Banca Transilvania, DSK, ABN AMRO, CaixaBank, Nordea, and Societe Generale, have adopted cloud-based solutions as part of their modernisation efforts, reporting improvements in efficiency and scalability.

Lastly, we should remember that digital transformation goes beyond technology; it is also a mindset. Financial institutions have trained staff to manage new platforms, interpret data analytics, and drive an innovation culture.

The future of European digitalisation

More than ever, regulators like the European Central Bank are raising the bar for real-time payments, data governance, and cybersecurity—leaving little room for half-measures. Partnerships between established banks and fintech specialists will intensify. Open Finance could be the next logical leap from Open Banking, offering integrated financial products such as insurance and wealth management within a single digital platform.

The real question is: will the financial institutions seize these shifts as an opportunity for exponential growth or remain in legacy constraints until it is too late? Ignoring ISO 20022 compliance or the surging demand for seamless digital interactions could cost institutions their competitive edge—and perhaps their very existence.

Digital transformation is not a marketing buzzword; it is a reality. By embracing a forward-thinking strategy—whether building, buying, or partnering—banks can align with evolving regulations, deliver compelling customer experiences, and ensure operational resilience. Those who move now will survive the next wave of disruption and lead the charge into a new era of European banking.