Modernizing your bank – Overcome legacy systems with AI and fintech
October 23, 2025
Key takeaways
- New technologies help banks counter the limitations of legacy systems and pave the way to profitability, efficiency and customer centricity.
- Modernization requires a complete overhaul of technology, processes and organizational culture, and AI plays a key role.
- Banks that invest in fintech experience faster digital transformation, market expansion and better customer engagement.
When you envision your bank in five to 10 years, you may predict a profitable institution filled with loyal customers who know they’re your priority. They enjoy convenient, personalized digital experiences with no friction, because your operations are efficient and you regularly deliver product innovations ahead of the competition.
Those satisfied customers trust you, too, because you continuously shield them from cyberthreats and fraud, whether their money is at rest in a deposit account, moving through the payment system or hard at work in the investment arena.
Why legacy systems hold banks back from modernization
The hard truth is that the legacy technologies you invested in decades ago are holding you back from the bank you hope to become. They’re so ingrained in your day-to-day operations that it is hard to fathom a way to modernize without complete disruption and intolerable exposure to risk.
There is no argument that the rip-and-replace approach of the past is out of the question, yet today’s phased method brings its own risks: the complexities involved in running dual systems in parallel, data synchronization and coaxing modern software into communicating with outmoded tools.
Complexities and risks aside, you might be postponing the modernization journey for another reason: the perceived cost. What you may not realize is that you are already paying a steep price. According to recent research by FIS® and Oxford Economics, the average financial institution loses $93.6 million per year due to a variety of reasons. Among them, $11.2 million is lost annually to operational inefficiencies, $5.6 million to friction in payments and processing, and another $5.6 million to human error and reworks. And that does not count the nearly $60 million in losses resulting from cyberthreats, fraud and compliance issues.*
Yet, all these stumbling blocks could be remedied by embracing advanced technologies such as AI, machine learning, cloud computing, open banking, advanced threat detection, blockchain and robotic process automation.
How technology, processes and people drive digital transformation in banking
As you embark on your modernization, it quickly becomes clear that it isn’t strictly about technology: It is as much about the processes that drive every interaction throughout your bank. You soon realize you’re facing a top-down, bottom-up organizational change that will simplify how you do everything.
The older your technology, the greater the leap from legacy to modern. The technical talent onboarded a couple of decades ago has retired or moved into new roles, while developers entering the industry don’t understand the outdated code deeply embedded in your systems. This is where AI helps you bridge the gap. Using generative AI and machine learning, you can automate and accelerate the analysis, translation and modernization of legacy code, freeing up your human developers for higher-value tasks.
How to measure success in your bank modernization journey
From the start of your modernization, it is important to think in terms of key performance indicators (KPIs). Change will come fast, and if you don’t measure what is working and what isn’t, it is easy to lose your direction. You’ll want to establish appropriate KPIs to gauge your achievements in four categories: customer experience, operational efficiency, financial performance and risk management and security.
For customer experience, you’ll establish KPIs such as customer satisfaction, ease of interaction, use of digital features and cost of acquisition. For operational efficiency, appropriate measures include cost-to-income, employee productivity and system response time.
To track financial performance, your KPIs would include metrics such as return on investments, assets and equity, as well as reduction in maintenance costs. For risk management, the analysis would include cybersecurity incidents and resolution, compliance penalties and disaster recovery time.
The business case for investing in AI and fintech modernization
If forces within your bank are arguing for further delays in modernization, look at what progressive banks have achieved by increasing their investments in the financial technology. According to The Harmony Gap research, 70% of the banks surveyed have realized enhanced collaboration across their organization, while more than half (54%) report an acceleration of their digital transformation initiatives. More than half have also experienced market expansion (56%), gained new customers (55%), enhanced customer engagement (51%) and improved employee productivity (50%).*
These payoffs are relatively stable when looking at regional variations between the U.S., U.K. and APAC. However, 86% of participating Singaporean organizations (cross-industry) see their fintech investments fostering a growing culture of innovation, which is significantly higher than in the U.S. (75%) and the U.K. (73%). On the other hand, APAC respondents see less improvement in employee productivity (40%), perhaps due to the region’s faster adoption of digital banking services and lower reliance on traditional personnel-driven models. Among other regional differences, APAC reported fewer new customers (42%) and less market expansion (42%), possibly a result of large unbanked and underbanked populations.*
How leading banks are modernizing faster with fintech and AI
The Harmony Gap study revealed that among all financial services organizations, banks stand out as the best prepared to address inefficiencies. In fact, 80% of the banks surveyed feel they’re well or moderately prepared to handle challenges within the financial technology ecosystem, and there is a reason they’re ahead of the game: namely, the financial crisis of 2008.*
The resulting reforms after the debacle forced banks to increase investment in technologies to meet strict new compliance, risk management and efficiency mandates. Despite the scramble to meet ballooning guidelines, visionary bankers paused to take a hard look at their processes to determine if greater efficiency could come out of adversity. They asked questions about how their institution could make use of the new data being driven by the clampdown. They explored how the need to adhere to tougher regulations could be transformed into opportunities to enhance customer satisfaction.
Enabling a smooth transition from legacy to modern banking systems
As ancillary innovations of all kinds continue to flood the market, it is important to keep an important distinction in mind: Your back-end core system is the heartbeat of your institution and the central source of truth as it steadfastly manages the foundational elements of banking. It is crucial to be able to run the bank at the same time it is going through its metamorphosis.
That is where a strong partner comes in, one with the depth and breadth to work with you and all stakeholders over the long haul, keeping business as usual on track and the customer experience front and center without losing sight of the goal.
*FIS, The Harmony Gap: Finding the Financial Upside in Uncertainty (with Oxford Economics), May 2025
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