The case for core modernisation: Why businesses must act now

Legacy systems are a competitive risk—financial institutions must modernise with AI, automation, and cloud solutions to stay agile and scalable.

Legacy systems are holding financial institutions back. While fintech disruptors move at speed, many firms remain stuck with fragmented technology stacks that increase costs, expose security risks, and degrade customer experience. The financial landscape is changing—those who fail to modernise risk falling behind. These outdated systems don’t just slow operations—they pose a competitive risk. While fintech disruptors capitalise on agility and scalability, businesses with legacy systems face higher costs, security vulnerabilities, and reduced customer satisfaction. A 2024 survey revealed that 55% of banks cite legacy systems as a key obstacle to digital transformation.

As maintenance costs soar, outdated systems—often running on COBOL—fail to support real-time payments, AI-driven analytics, and automated compliance checks. The pressure to modernise is no longer optional. Digital-first fintechs, powered by modern core systems, are outperforming traditional firms. To stay competitive, businesses must modernise.

A modern core, underpinned by the right technology and a strong data foundation, allows businesses to respond quickly to new opportunities. Yet, modernisation presents significant challenges, from mitigating risks associated with system changes to maintaining data consistency. Despite these obstacles, the alternative—sticking with outdated systems—often results in operational inefficiencies, customer churn, and missed revenue opportunities.

The challenges of core modernisation

For many global payments providers, core systems have evolved into critical infrastructure. System outages aren’t an option. The complex payments ecosystem involves digital onboarding, back-office integrations, numerous payment methods, and multiple currencies.

Modernising without disrupting these integrations – or managing system fragmentation where multiple systems coexist—requires a strategic approach. Rather than a ‘big bang’ replacement, organisations opt for a gradual, modular transformation that minimises risk while delivering incremental benefits.

Businesses are tackling these challenges with modern orchestration, using accelerators and frameworks to unify systems. This approach enables companies to gain a single customer view, prioritise areas for transformation, and deliver value incrementally through a phased rollout. For example, leading banks have successfully deployed cloud-based payment hubs that allow them to introduce new services without overhauling their entire infrastructure.

The need for speed and automation

One of the biggest drivers of modernisation is the accelerating pace of payments. Transactions are shifting from days to minutes and now to mere seconds. The growth in real-time payments is expected to continue rapidly, with 266.2 billion transactions recorded in 2023, representing a year-over-year increase of 42.2%. This upward trend is expected to continue, with projections estimating 575.1 billion real-time transactions by 2028.

To keep up, businesses must embrace automation, faster fraud prevention and real-time customer support. These capabilities depend on a solid data foundation powered by AI and machine learning.

With improved data models, businesses can unlock:

• Faster and more seamless customer onboarding, reducing friction and enhancing customer acquisition.
• Deeper customer insights, enabling personalised offerings based on real-time behaviour and trends.
• Optimised transaction routing, lowering costs and improving time-to-market for new services.
• Enhanced fraud detection, allowing AI to identify suspicious transactions before becoming threats.

Consider the impact of AI-powered fraud detection in payments. Recent data indicates that financial institutions integrating sophisticated machine learning models and real-time data analysis have achieved up to a 30% annual reduction in fraud losses. These insights protect revenue and enhance trust in digital payment services.

A phased approach to modernisation

Many businesses are already undertaking multi-year transformation programmes to future-proof their operations. However, modernisation does not mean rebuilding everything from scratch. A common misconception is that full system replacement is the only way forward. In reality, businesses can choose between different strategies:

1. Incremental modernisation: Updating components, starting with high-impact areas such as fraud detection or real-time payment processing.
2. Cloud migration: Moving core functions to cloud-based platforms for greater scalability and flexibility.
3. API-led transformation: Using APIs to connect legacy systems with modern solutions, enabling faster service rollouts without significant infrastructure overhauls.

Forward-thinking businesses seek strategic partnerships to accelerate time-to-market while focusing internal resources on differentiation. For instance, several global payment providers have leveraged banking-as-a-service (BaaS) solutions to launch new digital offerings in months rather than years, sidestepping the constraints of legacy architecture.

The long-term benefits of modernisation

The financial services industry is entering an era of AI-driven insights, automated decision-making, and seamless customer experiences. Without a modern, flexible core, businesses will struggle to harness these capabilities. Scalability is another key factor—legacy systems often can’t support the growing volume of digital transactions, leading to bottlenecks and inefficiencies. Unsurprisingly, banks using modern cloud-based cores report up to a 40% increase in transaction processing speeds.

The key to success lies in finding innovative ways to modernise, ensuring systems are ready for what is next—without compromising stability, performance, or security. By investing in future-ready infrastructure, businesses position themselves for growth, improved resilience and seamless integration with emerging technologies such as central bank digital currencies (CBDCs) and blockchain-based payments. Outdated systems also lack the flexibility to adapt to increasing regulatory requirements, such as the shift towards ISO 20022 messaging standards, creating further pressure to modernise.

Businesses that delay modernisation risk losing customers, market share, and operational efficiency. Modernisation isn’t just an upgrade—it is the key to survival in a digital-first economy. The time to act is now.