Legacy technology is limiting bank modernization

Banks have always been technology pioneers, yet many are now prisoners of their own legacy. Despite spending more on IT than any other major industry and funneling over $2.8 trillion into digital transformation since 2011, too many retail banks still can’t deliver the seamless digital experiences customers expect.

The loyalty crisis: Spending more, delivering less

My company, Baringa, recently surveyed 4,000 customers and 400 banking executives across the UK and US, revealing a widening disconnect between customer expectations and what banks can deliver.

More than one in three customers (35%) have switched banks in the past five years, most in search of better digital experiences, not better rates. And 68% of banking executives admit that their existing technology architecture actively hinders their ability to meet customer needs.

Mobile is now the dominant channel, with 45% of customers using it as their primary means of banking. Yet, it’s also the most requested area for improvement, with 44% wanting a better mobile experience. Customers want personalized, intuitive and secure interactions but instead, they encounter friction.

The result? Diminishing loyalty in an age when switching bank accounts is as simple as a few taps on a screen.

Legacy technology: The hidden barrier to progress

The problem isn’t a lack of investment. Yes, the cost is high, but effective treatment strategies are available to manage this condition. It’s the age and complexity of the systems beneath the surface that is the true problem. Our survey found that 63% of banks still rely on code written before the year 2000, while 67% say their entire technology stack would fail if the oldest systems stopped working. Even more worryingly, 77% report that only “one or two people” in their organization still have the skills to maintain this code and most are nearing retirement.

In other words, critical national infrastructure in banking runs on software designed before the internet age. This outdated technology creates three compounding problems:

• Operational fragility. Legacy code and unsupported platforms make outages and compliance failures more likely. One executive described systems still reliant on 8-inch floppy drives for critical updates, a vivid metaphor for how far behind the curve some institutions remain.
• Run-cost burden. According to Gartner, over 75% of IT budgets in many financial institutions are consumed by maintaining these old systems, starving innovation budgets and slowing transformation.
• Inhibited agility. Modernization programs overrun as banks struggle to deal with legacy architecture and data complexities. Indeed, 94% of large banking transformations exceed planned timelines, leaving customer improvements delayed and diluted.

The result is a vicious cycle. Every dollar spent patching and upgrading outdated systems is a dollar diverted from the modernization that could restore customer loyalty.

Breaking the cycle: A new technology blueprint

There is a path forward, but it demands decisive action. From our work across global banking and markets, we consistently see these issues and we believe these can be addressed over the long term with the following three strategies.

Refocus: Lead with purpose, not platforms

Banks need to start with truly understanding why (customer needs) and how their customers want to interact (experience) with their services, then define how they are going to differentiate. Technology alone will not win back loyalty. Sometimes, the greatest return comes from improving service, trust or personalization rather than layering on more tech.

Research from Forrester shows that banks leading in personalized digital experiences achieve up to 25% higher retention and a 20% uplift in cross-sell success. Conversely, institutions that rush infrastructure spend without redefining customer value risk building faster versions of the same old experience.

Replace or renovate: Build the modern digital spine

For many banks, the technological foundations are simply too old to adapt. If two-thirds of institutions say their operations would cease if legacy systems failed, the cost of inaction now exceeds the cost of replacement.

The answer lies in defining a technology strategy around a digital spine. A modular architecture that allows agility, integration and personalization at scale and is centered around three design principles:

• Build the core technology and data spine internally to retain strategic differentiation and control.
• Buy external solutions for commodity or repeatable processes that don’t define the customer experience.
• Integrate third-party and marketplace services for specialized or fast-evolving capabilities, enabling banks to scale quickly without adding new legacy dependencies.

This build-buy-integrate approach allows banks to modernize strategically and maintain control where it matters, while reducing cost and delivery risk elsewhere.

It’s also how challenger banks are winning. Monzo, for instance, built its business on this philosophy, focusing on customer differentiation through a lightweight, API-driven core. As its ex-CEO, TS Anil, recently noted, Monzo has become “a scaling, profitable digital bank with a world-class user experience that customers don’t just like, but love.”

The culture shift: Continuous transformation

Finally, transformation can no longer be treated as a one-off program. Modernization must become a continuous capability, not a project with an end date. For banks to break free of legacy constraints, the following considerations are essential:

• Transformation never ends. Change on this scale will be a multiyear, multidimensional journey. Change leaders should aim to secure a consistent stream of investment that allows the organization to build enduring capabilities. Every technology and data initiative should align with long-term strategic goals, creating compounding value across the organization.
• Full organizational shift. Transformation is everyone’s responsibility. While technology drives change, this transformation can’t be owned by IT alone. From boardroom to back office, everyone needs to be committed to making change happen. When transformation becomes embedded in organizational DNA rather than delegated to technical teams, banks can sustain the pace of change their customers demand.

The bottom line

Banks stand at a crossroads. 68% of executives acknowledge that legacy technology is holding them back. Every quarter spent maintaining outdated systems compounds risk, cost and customer attrition.

But those that act now and redefine their customer proposition, rebuild their digital spine and embed continuous change, will turn technology from a constraint into a competitive edge.

The future belongs to banks that leave legacy behind and build loyalty by design.

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