Rodrigo Silva is President – Americas at Temenos, the banking software company.
The core banking systems that power most financial institutions in the U.S. have been quietly working behind the scenes for years (in some cases, decades), but recent findings suggest they may have reached a tipping point. According to the American Bankers Association’s 2024 Core Platform Survey, 35% of banks are dissatisfied with their current core processor. These systems are central to a bank’s operations. Dissatisfaction today can quickly snowball into crisis tomorrow.
But here’s where it gets interesting: Even though many banks are unhappy with their core provider, most aren’t switching—at least not yet. According to ABA data, just 1 in 5 banks say they’re likely to change providers at contract renewal. While that’s still a minority, it’s a meaningful portion of the market, and it could signal the beginning of a broader shift in U.S. core banking.
What’s Behind This Dissatisfaction?
Banks are facing insane pressure to keep up with digital innovations. Fintechs and challenger banks are setting the new standard, offering quicker, more personalized services on cloud-based platforms. Many legacy core systems just weren’t built to compete with that.
Banks are voicing frustration with their cores for reasons that are becoming all too familiar:
• Lack of flexibility to easily integrate new products or services.
• Slow innovation cycles that fail to meet the demands of consumers.
• Inability to scale quickly as banks grow or pivot to new business models.
• High maintenance costs and the complexity of upgrading legacy systems.
These pain points have left many financial institutions feeling stuck. The dissatisfaction isn’t just about minor hiccups; it’s about whether these cores can still support banks’ long-term strategic plans.
Why Inaction Could Be The Biggest Risk Of All
While a large portion of banks from the ABA survey are dissatisfied, most aren’t ready to make the leap to something new. Why? Because core banking transitions are complex. Switching feels risky and often presents challenges that banking leaders have not faced in their tenure.
But here’s the thing: Sticking with a subpar system might be the greater risk. As the industry becomes more competitive, banks that don’t evolve will likely fall behind. Legacy systems may be safe, but eventually, they won’t be able to keep up with the demands of modern banking. The longer banks wait, the more it’ll cost them—not just in terms of technology but in customer satisfaction and market share.
The Growing Risk Of Doing Nothing
Not upgrading their core banking system can expose banks to significant risks. Legacy systems lack the scalability and security needed to meet modern demands. These outdated systems can also struggle to integrate with newer technologies, limiting a bank’s ability to offer innovative products and services.
Without updates, compliance with evolving regulations becomes more challenging, potentially leading to fines or legal issues. Over time, inefficiencies in processing and customer service may arise, damaging customer satisfaction and trust. Ultimately, staying on an outdated core banking provider can hinder growth and competitiveness.
Not to mention, with an aging workforce familiar with these legacy systems approaching retirement, it leaves many banks in a tough spot: train new staff on outdated technology or accelerate the shift toward modernization. The risks of sticking with legacy core banking systems are not just theoretical; they’re becoming increasingly tangible. Banks that delay modernization are facing a growing list of challenges, including:
• Explosion In Digital Transactions: The rapid acceleration of digital banking demands seamless, real-time processing.
• Rising Customer Expectations: Consumers expect personalized, instant and secure financial experiences.
• Intensifying Competition: Challenger banks, fintech disruptors and tech giants are reshaping the landscape.
• Emerging Technologies Like Generative AI: Banks that fail to leverage AI-driven efficiencies will fall behind. According to a recent study we conducted with Hanover Research, 75% of banks are exploring Gen AI deployment to improve efficiency, customer experience and business growth.
A Modern Core For Modern Banking
For banks considering a core system upgrade, the focus should be on aligning technology with long-term strategic goals. Institutions today need more than just a vendor—they need a partner and a platform that can evolve with them.
Insights from the study highlight the attributes that banks look for in their banking software: reliability, regulatory compliance and usage of AI. In addition, most banks also want banking software that is customer-centric, trustworthy and cost-effective.
These preferences point to a clear set of capabilities that banks should prioritize when selecting a new core provider:
• Comprehensive Functionality: A full suite of core banking capabilities to support current and future needs.
• Modular, Composable And Extensible Solutions: Allow banks to modernize at their own pace, upgrading specific components (e.g., deposits, lending, payments) without overhauling the entire system.
• Adaptable Technology: Providing flexibility to run across on-premises, cloud and SaaS, and the ability to coexist with legacy systems.
• Proven Experience: Providers that have successfully supported transitions and innovation for banks in the same position.
By focusing on these areas, banks can better position themselves for growth, adaptability and a seamless future for themselves and their customers.
An Inflection Point For U.S. Banks
The banking industry is facing a pivotal moment. Dissatisfaction with legacy core systems is no longer a quiet concern; it’s a widespread challenge prompting banks to reevaluate long-standing provider relationships. The pressure to innovate, adapt, deliver more value and mitigate risk is mounting.
The next few years could mark a significant change in the U.S. banking technology landscape. Banks that seize this moment to modernize can better position themselves as industry leaders, equipped to deliver innovation, agility and superior customer experiences. Conversely, banks that delay risk falling behind constrained by outdated systems and an inability to compete in a fast-moving, tech-driven market.
With a new generation of banking leadership unwilling to accept stagnation, the call for transformation is louder than ever.
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