finsmart-news_admin Contents
Banks across the U.S. and Canada continue to face increasing pressure on whether they should modernize their core systems incrementally or pursue full replacement. It’s a dilemma that carries strategic consequences well beyond IT, because core platforms power everything from daily transaction processing and regulatory compliance to product development and real-time customer service.
For context, 10x Banking last year reported that 55% of banking executives believe their legacy core limits competitiveness against digital-first challengers. In another survey by the Canadian Bankers Association, nearly two-thirds of institutions surveyed flagged core modernization as a top-three barrier to innovation, particularly when integrating APIs or launching new digital products.
That urgency is also growing. ISO 20022 messaging mandates, real-time payments infrastructure, and Canada’s 2025 open banking rollout are forcing modernization from a back-office initiative to a front-line business imperative. And according to Naresh Babu, VP of Digital Solutions and Architecture of consulting and services firm mobileLIVE, “this is no longer optional. It’s operational survival.”
The Problem With Today’s Core Banking Systems
Most legacy cores were built before cloud platforms, mobile apps, or real-time data pipelines existed. Many still run on COBOL, a language developed in 1959. A Reuters study estimated 43% of the world’s banking systems run on COBOL, including those accounting for 95% of ATM transactions. At the time of that study, the industry was estimated to be running on 220 billion lines of COBOL, and banks continued to add to it.
“COBOL expertise is vanishing,” Babu said. “Banks aren’t maintaining legacy systems because they want to — they’re doing it because they have no choice.”
In 2022 alone, financial institutions spent $36.7 billion maintaining legacy cores. That number is expected to reach $57 billion by 2028, with up to 85% of IT budgets consumed just to keep aging infrastructure running, according to Everest Group.
The limitations are more than technical. These systems weren’t built for AI, APIs, or compliance automation and they’re getting harder to secure. A 2023 ransomware incident affecting over 60 credit unions spotlighted the fragility of such legacy architectures.
“Modernization has to be aligned with business goals, not treated as an isolated IT project,” said Babu. “Strong data governance is critical to drive analytics, AI, and regulatory compliance.”
The Two Paths Forward
Most banks choose between incremental modernization and full replacement. Incremental upgrades involve layering microservices and APIs on top of existing systems. This approach allows gradual transformation with less disruption and, according to McKinsey, can be implemented in two years at 20–30% the cost of a full core replacement.
On the other hand, full replacement migrates all core functions to a modern, cloud-native platform. It supports real-time data, modular product rollout, and native API integration, but requires heavy upfront investment and multi-year implementation.
Major institutions have taken both routes. JPMorgan now runs 70% of its data on cloud infrastructure, investing over $2 billion in new data centers. Morgan Stanley’s internal tool, DevGen.AI, has processed nine million lines of legacy code, saving an estimated 280,000 developer hours. EQ Bank became Canada’s first cloud-native bank in 2019, accelerating product delivery and scaling hybrid services.
While the price tag is steep, the ROI is clear—and the market reflects that. According to Market.us, the global core banking software market will 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. Moreover, cloud deployments now make up about 58% of core systems. API integrations among traditional banks also surged 200% in 2023, according to DataHorizzon Research.
Why Modernization Pays Off
“Core modernization isn’t just about infrastructure. It’s a revenue enabler,” explained Babu. And his assertion is rooted in a body of evidence.
Accenture reports that banks using modern platforms to drive personalization see 40% higher engagement and 30% lower customer attrition. Another report by Salesforce found that 73% of banking customers expect seamless, omnichannel experiences.
Modern platforms also deliver hard operational wins. They reduce latency to sub-second speeds, push uptime to 99.99%, and bring transaction costs down to $0.08–$0.15, compared to $0.45–$0.65 on legacy cores.
Doing nothing isn’t a neutral choice. It means sticking with brittle, expensive systems that hinder innovation, expose security gaps, and drain IT resources.
Best Practices From the Field
Banks that get modernization right follow a clear playbook. They define transformation goals upfront, assess systems for modularity, pilot low-risk workloads, evaluate vendors through live POCs, and train engineering teams to operate in cloud-native environments.
Governance matters, too. Banks that adopt cross-functional, iterative models can move faster, reduce risk, and ensure compliance is embedded from day one. AI tools like DevGen.AI are helping institutions translate legacy code into modern formats, without halting business operations.
Perhaps most importantly, successful banks track outcomes, not just roadmaps — using metrics like time to market, onboarding speed, incident reduction, and developer productivity.
The Road Ahead
By 2030, analysts expect AI to rewire 44% of bank processes and over half of technology and operations roles. That future won’t be built on COBOL.
The choice ahead is clear: modernize incrementally, replace entirely or risk falling behind. “The institutions that act now, with strategic intent and architectural discipline, won’t just survive the next decade. They’ll lead it,” noted Babu.
