Legacy technology: The biggest barrier to digital agility in financial services
In this article
Summary
Our finance signals 2025 report explores how legacy technology is stalling progress in the Financial Services Industry (FSI). While many financial institutions continue to rely on outdated systems, the cost of doing so is quickly becoming unsustainable.
Our data shows that 37% of systems built on legacy technologies have a below-average architecture rating, more than three times higher than systems using modern tech. This poor architecture directly impacts change velocity, with 2-star systems delivering updates 40% slower than those with 4-star architecture.
The long-term impact? By 2028, banks that fail to modernize could lose over $57 billion, with missed revenue in payments alone reaching 42%.
Read the full report to discover how modernization can boost agility, speed, and future growth.
Introduction
Financial institutions still rely heavily on legacy systems, many built decades ago in the 1980s and 1990s. While these systems still often power critical day-to-day operations, they are also quietly holding organizations back. They make it harder to adapt, harder to innovate and are much more expensive to run.
By 2028, failing to modernize is estimated to cost banks over $57 billion, one IDC study found, with 42% in missed revenue opportunities in payments alone and potential annual cost savings of 21% left on the table.
At the same time, the banking sector is growing fast. Gartner forecasts it will hit $1 trillion by 2028, but many financial institutions are struggling to modernize. With legacy systems consuming the bulk of IT budgets, there’s not much room left to invest in future-ready technologies or digital transformation.
Why legacy systems are holding FSI organizations back
Legacy systems might still function, but they weren’t built for the demands of today’s digital economy. Many financial institutions are still running on decades-old technologies or programming languages like COBOL, and that’s a growing problem.
According to Forrester, 95% of ATM transactions still depend on COBOL, and there are an estimated 220 billion lines of COBOL code in use globally. That would be fine if there were still plenty of developers around to support it. But the reality is, COBOL expertise is disappearing. As seasoned programmers retire, maintaining these systems becomes harder, riskier, and more expensive.
What used to be “good enough” is now turning into a liability.
The urgency to modernize
So, it’s clear that legacy modernization is essential for staying competitive, improving efficiency, and meeting the expectations of today’s customers. But in practice, integrating newer technologies like AI, blockchain, and IoT into existing environments is rarely straightforward.
Unlike FinTechs, which tend to be more agile and tech-driven, traditional banks operate in a highly regulated, risk-averse environment. Their IT landscapes are complex, often combining a mix of on-premises infrastructure, cloud services, and hybrid solutions, making modernization both slow and expensive.
That’s why many FSI organizations take a phased approach. Instead of ripping out core systems entirely, they look to modernize gradually, wrapping or extending legacy systems to reduce disruption, lower risk, and manage costs more effectively.
The reality of legacy modernization
Most financial institutions understand the need to modernize, but knowing and doing are two very different things. According to a report by Advanced, 74% of organizations fail to complete their legacy modernization projects. The reasons vary, but the message is clear: it’s not easy.
Modernization isn’t just about swapping out old tech. It often means untangling fragile architecture, poor design decisions, and years of undocumented institutional knowledge, all while trying to keep the business running.
At Software Improvement Group (SIG), we use our Architecture Quality Model to help financial institutions measure how well they’re managing this complexity. The model evaluates six key aspects of architecture, covering both the technical and organizational side, and benchmarks the results against thousands of systems in our dataset. It’s a practical way to see where you stand, and where to focus your efforts.
4-star architecture systems allow for changes to be made 30% faster
Our earlier research has shown a clear link between architecture quality and change velocity in financial systems. Simply put: the better the architecture, the easier it is to adapt.
In fact, 4-star architecture systems allow changes to be made 30% faster than the market average. On the other hand, 2-star systems are 40% slower, making even small updates time-consuming and resource-heavy.
This efficiency gap is a major factor in digital agility. Besides creating technical headaches, poor architecture also slows down innovation across the board. For financial institutions under pressure to move faster and compete with more agile players, that drag can be a serious obstacle.
The path forward
Legacy systems aren’t going away anytime soon, but that doesn’t mean financial institutions are stuck. In fact, organizations that invest in improving architecture, even incrementally, can gain a real edge in speed, efficiency, and innovation. It’s not always about replacing everything at once. Often, it’s about knowing where to focus and how to build for flexibility.
The data backs it up: better architecture leads to faster change, lower costs, and fewer operational headaches. And in an industry where agility is becoming just as important as stability, that advantage is hard to ignore.
These insights come from our latest report, finance signals 2025, packed with exclusive IT insights from our benchmark research and 25 years of expertise in optimizing financial IT. It’s a must-read for CIOs, CTOs, and technology leaders looking to make informed, strategic decisions.
