MODERNISING CORE BANKING: RECLAIMING INNOVATION TO SERVE CUSTOMERS BETTER
By William Moroney, Chief Revenue Officer, Temenos
In today’s digital-first economy, banks are facing a defining moment. Customers expect their banking experience to be as intuitive and personalised as the best digital services in their lives. Yet, despite increasing investment in technology, many banks remain trapped in a cycle of maintaining legacy systems. These systems, often decades old, consume vast amounts of IT budgets estimated up to 70% globally 1, amounting to more than $45 billion annually. That’s money spent just to keep the lights on, rather than driving innovation or improving customer experience. This paradox is holding banks back. Legacy infrastructure slows down innovation, increases operational risk, and limits agility. It’s not just a technical issue. It’s a strategic one, and it’s time for banks to break the cycle.
THE COST OF STANDING STILL
Legacy systems were not built for today’s real-time, always-on digital economy. They’re difficult to integrate, hard to scale, and increasingly expensive to maintain. As the workforce familiar with these older technologies approaches retirement, banks face a difficult choice: train new staff on outdated platforms or leap into modernisation.
Standing still is no longer a safe bet. Regulatory pressures, cyber threats, and economic volatility are intensifying. Banks must be able to respond quickly to change, launch new products at speed, and deliver personalised services across preferred channels. That requires a modern core. The question is no longer whether to modernise, but how.
REPLACING THE ENGINE WHILE FLYING THE PLANE
Modernising core banking has often been described as open-heart surgery. A better analogy might be replacing the engine while flying the plane. It’s a delicate operation, and banks are under- standably cautious.
In a recent global study we conduct- ed with over 400 banking executives, re- liability ranked as the top priority when evaluating new financial software, higher than cost or speed of implementation. Stability is non-negotiable. Banks need to modernise with confidence, knowing that their operations will remain secure and uninterrupted.
That’s why successful transforma- tions begin with a clear strategy and a trusted partner. At Temenos, we’ve worked with banks of all sizes across 150 countries. What we’ve learned is that there’s no one-size-fits-all approach. Every bank’s journey is unique.
TAILORED TRANSFORMATION FOR EVERY BANK
Large banks often have the scale and resources to pursue targeted, point solutions. They may deploy specialised capabilities in areas like digital banking, payments, or financial crime mitigation to unlock new markets or enhance exist- ing services.
Mid-sized and regional banks are increasingly focused on modular mod- ernisation. They choose core solutions that allow them to progressively upgrade key areas such as commercial lending or retail accounts while maintaining opera- tional continuity. Flexibility is key, and many value solutions that run across cloud, on-premises, and SaaS environ- ments.
Smaller banks and credit unions typi- cally seek full core banking suites and experienced partners. SaaS is an increas- ingly preferred option, empowering these institutions with scale and innovation, while freeing them to focus on growth rather than infrastructure.
MODULARITY: RENOVATING SAFELY, PIECE BY PIECE
One of the most powerful enablers of effective modernisation in large banks with complex legacy environments is modularity. Rather than undertaking a full-scale replacement of core systems, which can be disruptive and resource- intensive, banks are increasingly choos- ing to do this in stages.
Modular core banking solutions al- low institutions to renovate key systems piece by piece. Whether it’s upgrading commercial lending, retail accounts, payments, or digital channels, banks can target the areas most critical to growth and customer experience.
According to our global study, 65% of banks say they are updating individ- ual core components over time based on business needs, while only 6% are attempting full replacements. This in- cremental approach reduces imple- mentation risk, minimises operational disruption, and allows for faster time to value.
Combined with the flexibility to de- ploy solutions across different environments – on-premises, in the cloud, or as SaaS – it means banks can modernise at their own pace, aligned with their stra- tegic priorities and regulatory require- ments.
AI AND THE FUTURE OF CORE BANKING
As new technologies like generative and agentic AI reshape the industry, the need for a modern core becomes even more urgent.
AI has the potential to deliver insights, automate operations, and per- sonalise the customer journey in banking. But only if banks have the infrastructure to support it.
According to our global study, three quarters (75%) of banks are exploring Gen AI deployment2 with 36% having al- ready deployed or in the process of de- ploying it, while another 39% are consid- ering opportunities for deployment.
Yet there are clear challenges. Banks have data protection concerns with Gen AI. Over half cite concerns with legal requirements (60%) and hallucinations, instances where Gen AI provides inac- curate results (59%).
To unleash the power of AI, banks need effective governance, robust training, and clear regulation. And just as importantly, they need a core banking platform that generates high-quality data, allowing AI technologies to operate safely and at scale.
At Temenos, we’re already seeing the impact AI can have. Our Product Man- ager Copilot helps banks design, launch, and optimise financial products faster
using generative AI. Our AI Agent for financial crime mitigation, co-created with a Tier-1 bank, improves sanctions screening by reducing false positives with human-like precision.
PUTTING CUSTOMERS FIRST
Ultimately, core modernisation is about more than technology; it’s about people. It’s about giving customers fast- er, smarter, and more personalised ser- vices. It’s about empowering banks to innovate, adapt, and grow. Building the agility to thrive in a future where change is constant.
At Temenos, we believe in putting customers in control. Modernisation should be based on their strategy, their pace, and their priorities. Whether that means a full core replacement, a modu- lar upgrade, or deploying point solutions around existing systems, the goal is the same: to serve customers better.
Our value benchmark study, based on insights from 150 banks and 70,000 data points, shows that banks on our latest core banking software achieve IT spend on growth and innovation at twice the industry average.
Banks that embrace modernisation today are not just preparing for tomor- row, they’re shaping it. They’re reclaim- ing their tech budgets and turning them into engines of innovation. Building the agility to meet customer expectations, respond to market shifts, and lead in a digital-first world.
Now is the time to act.