Trapped in the past: How legacy systems are bleeding UK banks dry

UK banks are under immense pressure to innovate. Customer expectations are evolving fast, with personalised and digital-first services now the norm. Yet new research shows nearly seven-in-ten UK banks (68%) admit growing demand for digital services is straining their infrastructure. With competitors becoming more agile than ever, banks cannot afford to be trapped in the past by outdated technology. At the heart of the problem? Legacy core banking systems, which most describe as a “bottomless pit” of wasted money and time.

Sluggish legacy systems have pushed banks to the brink: delaying the delivery of new products, extending project timelines, and inflating costs. Almost a quarter (24%) of UK banks’ IT budgets are spent on maintaining core systems – equivalent to £3.3 billion annually. That’s money that could be fuelling innovation, accelerating product development, and boosting the customer experience. Instead, banks are pouring billions down the drain to prop up yesterday’s technology, while systems continue to creak and break.

The problem with redundant core systems isn’t just a dip in performance, it’s a nosedive that’s fast-becoming a matter of survival. To compete and thrive in today’s fast-moving financial landscape, banks must prioritise agility; and that starts with modernising legacy systems. You can’t build the future of banking on foundations from the past.

The vicious cycle of legacy spending

Despite significant investment, legacy systems are breaking, and things will only get worse. Downtime, slow performance, and failed transactions are critical failures, not just minor glitches. Every delay and missed datapoint is a fraudster’s dream, practically inviting trouble in through the front door. Legacy core systems are no longer the Holy Grail of banking; they’re a liability.

Over half (53%) of UK banks have experienced outages or downtime due to legacy core systems, racking up expensive IT and recovery costs. These failures will frustrate customers and can also attract regulatory scrutiny. Aroundone in five (22%) of UK banks have received warnings or fines for failing to meet uptime or data-protection requirements, compounding the damage.

The ongoing costs of managing these systems is bleeding banks dry, potentially signalling “game over” for some over time. In extreme cases, the combined expense of managing both staff and the technology stack have almost doubled the original cost of core banking installation projects. Smaller banks feel the impact most, but even the largest players can’t keep burying their heads in the sand.

Even when systems stay online, progress grinds to a halt. Rolling out new products or services often takes months – or even years – longer than planned, with project costs sometimes doubling along the way. Adding to the burden, more than half (59%) of UK banks consider having to pay external vendors for minor tweaks a major frustration, costing approximately £1.5 million annually on third-party fees.

This combination of delays and rising costs creates a vicious cycle. The longer projects are delayed, the more the technology, regulatory, and competitive landscape evolves. Subsequently, banks are left with systems that are out of sync with market demand and, as a result, are out of touch. It’s no wonder banks feel frustrated and, frankly, ripped off.

Balancing innovation and stability in core banking

Legacy systems are now more of a burden than a backbone. Banks urgently need a strategy that allows them to modernise core banking while minimising disruption and risk.

Replacing legacy systems entirely is a daunting task. No board embraces the idea of a “Big Bang” transition from one system to another. After decades of building complex IT infrastructures, a straight switch to a new, cloud-native core is nearly impossible in practice. It would be like performing open-heart surgery while the patient is still walking about – too risky to attempt.

The smarter route is adopting a hybrid, multi-core approach: running a modern, cloud-native core alongside existing legacy systems. This approach allows banks to drive innovation and migrate legacy technology gradually, without interrupting services or introducing new risks. But this only works if the new core istruly cloud-native.

Banks are sick of vendors slapping a “cloud” label on old products, without providing the agility, scalability or innovation that truly cloud-native solutions can offer. Nearly two-thirds (63%) of UK banks have been sold short, saying the core banking products they’ve implemented either don’t align – or cannot be confirmed to align – with cloud-native capabilities. To modernise effectively, banks must demand genuine cloud-native solutions. Only event-driven, API-first architectures can banks unlock real-time customer insight, lower costs, and the flexibility to innovate at the speed they need.

Over time, a dual-core strategy allows banks to take charge, develop new products in-house, and make maintenance changes without relying on expensive third-party support. Done right, it turns the burden of legacy systems into a platform for sustainable growth.

Breaking free from hidden costs

Yesterday's technology cannot deliver the needs of today's banking, let alone the banking of the future. By carefully modernising their core systems and investing in flexible, cloud-native platforms, banks can finally break free from the cycle of hidden costs.

The payoff is clear: improved efficiency, faster product delivery, and the freedom to innovate without being held back by sluggish, outdated technology. In a market where switching banks has never been easier, modernisation is not just about cost savings – it’s about staying relevant, competitive, and capable of meeting customer needs.  

Steve Round, Co-Founder and President, SaaScada

For 30 years, Steve has worked globally in inclusive banking, delivering affordable and accessible retail financial services for society’s poorest, with major brands including The Big Issue Foundation, GE Money, Centenary Bank and Ecology Building Society.

He also chaired the Governing Board Forum of the GABV and was named Director of the Year at the 2024 UK Fintech Awards.