Legacy Systems Are the Biggest Barrier to Banking Innovation
More than 70% of the world’s largest banks still run on core systems built in the 1980s and 1990s, according to Accenture’s 2025 Banking Technology Report. These COBOL-based mainframes process trillions of dollars in daily transactions but cannot support the real-time, API-driven services that modern customers expect. Replacing them has become the single largest technology investment for most banks — and fintech companies are the ones building the replacement infrastructure.
The global core banking software market reached $15.2 billion in 2024, according to Grand View Research, with cloud-native platforms from fintech providers capturing an increasing share. Companies like Thought Machine, Mambu, 10x Banking, and Temenos are providing the technology that allows banks to migrate from legacy systems to modern platforms without interrupting service to existing customers.
The Modernisation Playbook
Most banks are not replacing their entire core systems at once. Instead, they use a “strangler fig” approach — gradually routing new products and customer segments to modern fintech platforms while maintaining legacy systems for existing operations. Standard Chartered used this method with Thought Machine’s Vault platform, launching new digital products in Asia while keeping its traditional core running in parallel.
McKinsey estimates that banks using this phased approach reduce modernisation risk by 60% and complete the transition two years faster than those attempting full replacements. The key enabler is APIs. Fintech platforms are built API-first, meaning they can connect to legacy systems, third-party services, and new digital channels simultaneously. This connectivity is what allows fintech revenue to grow at 23% annually — banks are willing to pay for technology that reduces their operational costs and speeds up product delivery.
Real-World Results
Banks that have completed modernisation projects report measurable improvements. JPMorgan Chase invested $15.3 billion in technology in 2024 — more than any other bank — and attributes its industry-leading efficiency ratio of 49% partly to technology modernisation. DBS Bank in Singapore, which rebuilt its technology stack over five years, now processes 99.95% of transactions digitally and was named “World’s Best Digital Bank” by Euromoney for three consecutive years.
Smaller banks are seeing similar benefits. In the UK, Atom Bank runs entirely on a cloud-native platform and operates with a cost-to-income ratio below 50%, compared to the 60-65% average for mid-sized British banks. OakNorth, also built on modern fintech infrastructure, has originated more than $10 billion in loans with a default rate near zero, because its AI-driven credit platform can analyse borrower data in ways that legacy systems cannot.
The Compliance Factor
Regulatory compliance is one of the strongest drivers of modernisation. Banks spend an estimated $270 billion annually on compliance, according to Thomson Reuters. Much of that cost comes from manual processes running on outdated systems. Fintech compliance platforms like ComplyAdvantage, Onfido, and Alloy automate identity verification, transaction monitoring, and regulatory reporting — tasks that previously required large teams of compliance officers.
The Basel III endgame rules, which are being implemented across major banking jurisdictions through 2028, require banks to calculate capital requirements with greater granularity. Legacy systems struggle to produce the detailed data that regulators now demand. Banks that have modernised their technology stacks report completing regulatory calculations in hours rather than weeks, and with fewer errors. This compliance advantage is becoming a competitive factor, as regulators increasingly penalise banks for data quality issues.
What Comes Next
Fintech venture investment in banking infrastructure totalled $12.3 billion in 2024, with core banking platforms, compliance tools, and data analytics receiving the largest allocations. As more banks complete their modernisation projects, the technology gap between early adopters and laggards will widen. Banks running on modern fintech platforms can launch new products in weeks instead of months, respond to regulatory changes in days instead of quarters, and serve customers at a fraction of the cost of legacy operations.
