Charlie Gautreaux is the CTO of IRALOGIX.
A lot of financial firms are still running on old, outdated systems. The Financial Conduct Authority (FCA) said in a recent report that 92% of U.K. firms are using legacy technology and that 78% are still tied to on-premise data centers. That’s a problem, and it isn’t limited to the U.K. These systems weren’t built for speed, flexibility or scale, and any firms relying on them are at a disadvantage in my experience.
Many of these platforms have been around for decades—some even since the 1960s. Legacy technology is costing financial firms a substantial amount of money. For instance, The Fintech Times reported that, according to one study, spending on outdated payment systems by banks and financial institutions is predicted to reach $57.1 billion in 2028. Those are dollars that could be going toward innovation or client services instead of maintaining legacy technology. Security is another major issue. IBM’s 2024 “Cost of A Data Breach Report” found that the financial industry has the second-highest average cost associated with data breaches, at $6.08 million. These older systems simply weren’t built for modern security threats, and it’s becoming harder to keep them protected.
What This Means For Financial Firms
For firms still operating on legacy technology, the challenges add up quickly:
- Slow Processes: Transactions take longer, and errors are more common.
- Scalability Issues: Expanding services or adapting to new market conditions is difficult.
- Integration Headaches: AI-driven tools and real-time analytics don’t fit easily into older systems.
These problems don’t just impact firms internally. They make it harder for individuals to access the financial tools they need—whether that’s better retirement planning, lower fees or real-time insights. The World Economic Forum (WEF) projects that the U.S. retirement savings gap could hit $137 trillion by 2050. Additionally, the WEF examined six countries and found that “people should expect to live longer than the pot of money they have saved for retirement, by between eight to almost 20 years on average, with the highest burden on women.” And according to the Board of Governors of the Federal Reserve System, there are significant disparities in retirement savings in the U.S. Without modernization, financial services firms are making it harder, not easier, for people to prepare for the future.
How Cloud-Native Platforms Solve These Problems
A cloud-native platform isn’t just an upgrade—it’s a completely different approach that eliminates many of the issues legacy firms are facing:
- Scalability: Systems adjust as demand grows, making it easier to launch new services.
- Lower Costs: Firms that move to modern platforms report faster processing times and fewer errors, which reduces expenses.
- Security Improvements: Cloud platforms update automatically, reducing vulnerabilities.
- More Flexibility For Innovation: AI, automation and personalized financial tools are easier to integrate. According to a 2024 survey of financial services firms by communications data and intelligence platform company Smarsh, “79% of firms view AI as critical to the sector’s future.”
How To Implement A Modern Platform—And What Most Firms Get Wrong
Most firms can’t just migrate their existing system to the cloud. That’s not how it works. The architecture is too old, and there’s no simple way to move it over. The only real option is to rebuild. That’s why so many firms delay modernization—keeping the old system running feels like the easier choice. But the longer they wait, the harder it becomes.
Here’s what firms should consider when making the transition—and the common mistakes to avoid.
1. Don’t Try To Modernize An Old System
One of the biggest mistakes firms make is thinking they can update their legacy systems instead of replacing them. These systems weren’t designed for modern financial services and often can’t run new technologies, such as artificial intelligence (AI). Patching them together with new features doesn’t solve the real problem. Even large firms have made this mistake. Some firms I know have invested close to a billion dollars trying to modernize their legacy systems, only to abandon the effort when they realized it wouldn’t work.
This is the reality. Building from the ground up is the only way to create a platform that meets today’s needs. Consider this: According to a study by the World Economic Forum, the pension gap for the United States, United Kingdom, Japan, Netherlands, Canada, Australia, China and India is expected to hit $400 trillion by 2050.
2. Choose A Partner That Aligns With The Business
Not every firm can develop its own platform. That’s where technology partners come in—but the wrong choice can create more problems than it solves. Some providers offer platforms that compete with the firms they serve, which can create long-term conflicts.
Since these technology partnerships tend to last a decade or more, firms need to be selective.
3. Plan For Growth, Not Just Immediate Fixes
Too many firms look at modernization as a quick solution rather than a long-term investment. A modern platform should do more than just solve today’s problems. It should provide room to scale, integrate artificial intelligence-driven financial tools and adapt as client expectations change.
The reality is that many consumers today have expectations for personalization when it comes to their digital experiences—and AI can help financial services firms meet those expectations. As noted by Ernst & Young, “AI-powered tools can personalize financial products and services for individual customers, leading to increased customer satisfaction and loyalty.” Moreover, many consumers aren’t resistant to AI. According to an Accenture study, 51% “are open to using conversational AI solutions.”
4. Minimize Disruptions For Clients
The biggest concern for many firms is how modernization will impact their clients. A poorly planned transition can create confusion, frustration and lost business. Firms need to make sure clients understand what’s changing, why it matters and how they’ll benefit from the new platform.
Cultivating that understanding is especially important for specific demographics. For instance, the Pew Research Center found in 2022 that “adoption of key technologies by those in the oldest age group has grown markedly since about a decade ago.” However, as explained by an article in the public media outlet Marketplace, “many older adults are left out by the move to digital.”
The Long-Term Impact Of Modernization
Keeping legacy systems running is expensive, time-consuming and limiting. Modern platforms remove those barriers, giving firms the ability to build new features, integrate better tools and actually keep up with what investors want.
Security is another major factor. Cyber threats against fintechs are multiplying, with “65% of organisations hit by ransomware in 2024,” and outdated systems aren’t keeping up. Cloud-native platforms update automatically, reducing risk and making compliance easier. They also help firms lower costs, improve investment options and give individuals better access to financial planning tools.
For firms that can’t build a new system themselves, the right technology partner makes all the difference. Some providers align with a firm’s long-term strategy. Others don’t. Since these partnerships last years, it’s critical to make the right choice.
Putting off modernization might seem like the safer option, but it only makes the transition harder down the line. Firms that take action now will have an easier time scaling, adapting and serving their clients in the years ahead.
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