Legacy Core Banking Systems: Necessity of Modernization for Operational Survival

Banks in the US and Canada face pressure to modernize their core systems, with legacy platforms limiting competitiveness against digital challengers and hindering innovation. Legacy cores were built before cloud platforms and mobile apps, and many still run on COBOL. Banks spent $36.7 billion in 2022 to maintain legacy cores, with the number expected to reach $57 billion by 2028. Incremental modernization and full replacement are the two paths forward, with incremental upgrades being a more cost-effective option.

Banks across the US and Canada are under increasing pressure to modernize their core systems, as legacy platforms are limiting competitiveness against digital-first challengers and hindering innovation. According to 10x Banking, 55% of banking executives believe their legacy core systems limit their competitiveness [1]. This sentiment is echoed by the Canadian Bankers Association, where nearly two-thirds of institutions surveyed flagged core modernization as a top-three barrier to innovation [1].

Legacy core banking systems were built before cloud platforms and mobile apps, and many still run on COBOL, a language developed in 1959. A Reuters study estimated that 43% of the world’s banking systems run on COBOL, including those accounting for 95% of ATM transactions [1]. In 2022 alone, financial institutions spent $36.7 billion maintaining legacy cores, a number expected to reach $57 billion by 2028 [1].

The limitations of these systems extend beyond technical constraints. They were not built for AI, APIs, or compliance automation, making them harder to secure. A 2023 ransomware incident affecting over 60 credit unions spotlighted the fragility of such legacy architectures [1]. Naresh Babu, VP of Digital Solutions and Architecture at mobileLIVE, emphasizes that modernization is no longer optional but an operational survival necessity [1].

Banks face two main paths forward: incremental modernization and full replacement. Incremental upgrades involve layering microservices and APIs on top of existing systems, allowing for gradual transformation with less disruption. According to McKinsey, this approach can be implemented in two years at 20–30% the cost of a full core replacement [1]. On the other hand, full replacement migrates all core functions to a modern, cloud-native platform, supporting real-time data and native API integration but requiring heavy upfront investment and multi-year implementation [1].

Major institutions have taken both routes. JPMorgan now runs 70% of its data on cloud infrastructure, investing over $2 billion in new data centers [1]. EQ Bank became Canada’s first cloud-native bank in 2019, accelerating product delivery and scaling hybrid services [1]. The global core banking software market is expected to grow from around $14.47 billion in 2024 to nearly $50.9 billion by 2034, with North America accounting for over 31% of that share [1].

Modernization pays off in several ways. It enables revenue growth, reduces operational costs, and enhances customer experiences. Accenture reports that banks using modern platforms to drive personalization see 40% higher engagement and 30% lower customer attrition [1]. Successful banks follow a clear playbook, defining transformation goals, assessing systems for modularity, and piloting low-risk workloads [1].

The road ahead is clear: banks must modernize their core systems to remain competitive. Doing nothing means sticking with brittle, expensive systems that hinder innovation and expose security gaps. By 2030, AI is expected to rewire 44% of bank processes, underscoring the need for action [1]. The institutions that act now, with strategic intent and architectural discipline, won’t just survive the next decade—they’ll lead it [1].

References:
[1] https://financefeeds.com/why-banks-must-modernize-core-banking-now/
[2] https://www.ainvest.com/news/royal-bank-canada-bank-montreal-explore-2-billion-sale-canadian-payments-venture-moneris-2508/