The Real Truth About Core Banking Modernization: Lessons from The Wau Factor Season 1.

Our boardroom experience with banking executives reveals a common thread. They believe their modernization challenges stand alone. They don't. This pattern shows up in banks of all sizes. Teams focus too much on picking the right technology but miss the basic roadblocks to change.

Core banking modernization isn't just about technology—it's a business transformation challenge that requires tech solutions. Banks often see this as a simple system upgrade and miss the deeper organizational factors.

Our C-suite discussions have revealed three common myths:

1. "We just need better technology." No core banking platform can fix cultural resistance, mixed-up incentives, or a fuzzy strategic vision.

2. "It's too risky to change"—The bigger risk is maintaining systems that limit one's ability to keep up with nimble competitors.

3. "We can modernize without disruption" - This overlooks the organizational changes needed to transform successfully.

   
   

Core modernization's hidden complexity extends far beyond code and databases. It runs through decision-making, department boundaries, and decades-old workflows. Many banks also underestimate how their core systems connect with other applications.

Leadership alignment makes the difference between success and failure. Banks that modernize well have leaders who know transformation fatigue exists and needs active management. These leaders understand that modernization means orchestrating change on multiple fronts.

A regional bank's story comes to mind. Their CIO was sure they had mastered the technical side of modernization. All the same, their project hit a wall six months later. The problem wasn't technical—business units couldn't agree on process standards and data rules.

Early modernization pioneers have taught us key lessons. A clear business vision comes before any tech roadmap. They build cross-functional teams with real power to make decisions. They create room to experiment while keeping operations stable.

Bank executives should ask crucial questions before pouring millions into new core systems. Can your organization handle this transformation? Do your business and tech strategies match up? Have you found the real bottlenecks in your current setup?

Core modernization requires an honest assessment of your organization's readiness to change. Technology presents challenges, but managing the human element is where the real work starts.

The hidden cost of legacy systems in banking

Legacy systems cast a long shadow over the banking industry. The costs and inefficiencies run deeper than most executives realize. Behind the sleek digital interfaces that customers see lies a patchwork of outdated technology, making it harder for banks to invent and compete.

Why outdated systems still dominate

The banking sector runs essentially on technology from a different era. COBOL—a programming language developed in the 1950s—still powers 95% of all ATM card swipes and over 80% of credit card transactions [1]. Many institutions avoid modernizing because they fear disruption risks.

Banks face a stark reality - 55% name legacy systems as their most significant obstacle to digital transformation [2]. These banks deal with a troubling situation: COBOL programmers are retiring faster than ever, and the specialized talent needed to maintain these systems is vanishing.

Many banks stick with outdated systems because they've invested heavily in customizations over the decades. Research shows that just 10% of these customizations support critical business functions or regulatory requirements [1]. The rest add unnecessary complexity without matching value.

The operational and financial toll of legacy infrastructure

Maintaining legacy infrastructure costs banks staggering amounts. Global banks spent $36.70 billion keeping systems outdated in 2022, which could reach $57.10 billion by 2028 [3]. Banks spend about 78% of their IT budgets on running these old systems [1].

This technical debt creates a competitive disadvantage that grows worse each year:

• All but one of these banks struggle to implement new digital solutions due to their legacy infrastructure [3]

• Traditional banks spend $150-$350 to acquire each new customer, while digital-native competitors do it for just $5-$15 [1]

• 59% of bankers describe their legacy systems as a "spaghetti" of interconnected but antiquated technologies [3]

How the market is showing the real blockers to change

A Wau's research in 2025 found that modernization faces challenges beyond technical issues. The study showed how fragmented data environments prevent unified customer views and limit personalization efforts.

The report revealed that banks with modernized core systems saw 45% better operational efficiency and cut costs by 30-40% in the first year [1]. Cloud-native architectures achieved near-perfect service uptime at 99.99%, making systems more reliable [1].

This study discovered that organizational issues blocked progress more than technical limitations. Data silos, resistance to standardization, and old-school thinking mirrored the nature of these fragmented systems.

Designing a future-ready core: What WAU got right

Image Source: Baseella

A core banking system transformation needs architectural choices that deliver value now and adapt to future needs. We modernized our approach by building foundations on technical patterns that support quick changes, stability, and state-of-the-art solutions.

Microservices and modular architecture

Banks are moving from traditional monolithic core banking applications to modular designs that streamline processes. Small, independent pieces called microservices can run independently while talking to each other through clear interfaces. This fundamental change brings many benefits. Banks have reported 45% increased operational efficiency with modern core systems [1].

Today's implementations assign each microservice to a small, dedicated team that follows the "Two Pizza Rule"—the team should eat just two pizzas [4]. This creates a network of focused, self-sufficient units. Together, they provide powerful banking features that are easy to maintain.

Banks using microservice architectures can now:

• Scale-specific functions without system-wide impact

• Update continuously with zero downtime

• Keep problems isolated to prevent widespread issues

API-first strategy for flexibility

API-first design philosophy is the lifeblood of modern core banking platforms. Smart banks design their features as services that work through standard interfaces instead of building systems with limited connection points.

Most banks work with point-to-point connections that create choppy experiences [5]. API-first banking makes smooth integration possible with fintech partners, regulators, and customer apps. This helps banks earn more through third-party platforms with embedded finance options [5].

ING Bank showed this value when it moved a component to cloud-native in just 2.5 days during a hackathon [6]. APIs work like electrical outlets—standard connection points that welcome new ideas without changing the whole system.

Containerization and orchestration with Kubernetes

Docker's containerization technology gives banking apps reliable development, testing, and production environments. This solves the common "it works on my machine" problem that often troubles complex financial systems [6].

Kubernetes leads the industry in container orchestration. It handles automated deployment, scaling, and management of containerized workloads. A prominent US bank now runs its core banking apps on Kubernetes, saving money and helping developers work better [7].

Kubernetes' immutability principle perfectly fits banking needs. Created objects keep their desired state, which makes them more reliable and secure [7]. This reliable infrastructure helps banks achieve near-perfect service uptime of 99.99% [1].

The power of parallel: How to modernize without disruption

Image Source: Learn Microsoft

Banks don't need to leap blindly to modernize their core systems. Many hesitate to move forward because they worry about disrupting their operations during the transformation. A better way exists, but banks often miss it.

Understanding the strangler fig pattern

The Strangler Fig pattern is inspired by a tropical vine that slowly takes over host trees. This pattern helps banks move their functionality from old to new systems step by step without disrupting daily operations. The process starts with a façade or proxy between client applications and both systems. This setup routes requests properly as the migration moves forward [8].

Research shows that this step-by-step approach reduces risks compared to complete system replacements. Banks that use this pattern reduce their implementation risks up to seven times compared to full overhauls [9].

Setting up a parallel environment

Banks can run old and new systems together during the transition with a parallel environment. This setup needs:

• A new banking system running next to the current one

• Two-way data sync

• Tracking of over 300 events immediately to maintain data quality [9]

McKinsey compares core banking to a bank's heart - you can't replace it all at once. The parallel approach lets banks validate performance continuously while keeping operations stable.

Selective migration of services and customers

After setting up the parallel environment, banks can start moving specific functions or customer groups strategically:

1. Service-activated migration - Moving customers when specific events happen, like credit restructuring or new card issues [10]

2. Customer-segment approach - Testing system stability with select customer groups before wider rollout

3. Product-centric migration - Starting with simple products like checking accounts before complex ones [10]

About 40% of global banks will use this complementary approach to modernize their core banking by 2026 [10].

Lessons from real-life cases in Latin America and Europe

Santander shows how powerful parallel modernization can be. The bank transformed its core banking across 11 countries and simultaneously processed up to 500 transactions per second in both systems [10]. After six months of successful parallel running, they unplugged their mainframe completely.

Brazil's Banco Votorantim achieved impressive results with its full-scale modernization without disrupting customer service. Its transformation led to a 28% increase in customers and a 67% cut in account opening time [11].

These success stories teach us something important: parallel environments give banks a safety net to move forward while confidently minimizing risk. This approach lets banks coordinate change at a pace that matches their organization's ability to transform.

Automation as a safeguard, not just a speed boost

Automation is the foundation of successful core banking modernization, acting as both an accelerator and a safeguard. Our work with financial institutions shows that many view automation simply as a way to speed up processes, yet its protective role is equally significant.

CI/CD pipelines for continuous delivery

Continuous Integration/Continuous Delivery pipelines have reshaped how banks deploy software updates. Unlike traditional manual deployment approaches, CI/CD creates an optimized path from development to production that addresses banking's strict requirements. Automated CI/CD workflows help achieve up to 90% faster testing cycles than manual processes [12]. This substantially reduces time-to-market for banking software updates without compromising quality.

Through CI/CD automation, banks can integrate security and compliance checks directly into the development process. Code changes automatically undergo vulnerability scanning and regulatory verification before deployment, turning what was once a bottleneck into a natural part of the delivery pipeline.

Automated testing to catch issues early

Software failures in banking carry extraordinarily high financial stakes—a single bug could cost millions. Automated testing works as an early warning system to detect issues before production deployment.

Detailed automated test suites achieve over 85% test coverage [12]. This minimizes the risk of undetected bugs or vulnerabilities in customer-facing systems.

Implementing test automation reduced a bank's regression execution time from over 4 hours to just 15 minutes [13]. This enabled faster, more frequent releases while maintaining strict quality standards.

Real-time monitoring for operational stability

Automated monitoring provides constant visibility into system health beyond deployment. Modern observability tools let banks track vital metrics such as transaction throughput, latency, response codes, and error rates with up-to-the-minute data analysis.

Core banking systems require monitoring across multiple layers:

• Transaction success rates across channels (mobile, web, ATM)

• System latency for high-value transactions like wire transfers

• Service availability for critical functions such as account inquiries

Through detailed monitoring, banks can spot potential issues before they affect customers. This enables proactive intervention rather than reactive firefighting. Automation transforms quality assurance from a checkpoint into a continuous guardian of operational stability.

Managing coexistence: The real challenge of core modernization

Technical decisions in core banking modernization are just the beginning. The real challenge lies in balancing old and new systems that must work together. This delicate balance can make the difference between success and failure in your transformation.

Synchronizing legacy and new systems

Coexistence has become the preferred migration pattern for high-volume, customer-centric transformations. Banks now choose this approach because it cuts down risks compared to the "big bang" strategy that led to many high-profile failures [14].

Two main setups help manage parallel operations. The active/active setup creates true coexistence by handling mirrored requests and calls. This setup works best for test-and-learn migration and offers more flexibility [15]. The active/passive setup matches the new core to the legacy core. It lets banks compare outputs from both systems and needs fewer technical resources [15].

A major bank implemented this strategy by creating a routing layer. This layer fed data into both core banking systems and built a data cache solution that made routing decisions quick and clear [16].

Ensuring data integrity across platforms

Data integrity stands as the top priority during coexistence. Banks need strong, automated reconciliation tools that naturally combine data from different sources [16]. Complete controls, traceability, and audit capabilities help track customers and their data throughout the migration [14].

Banks should check their reconciliation by comparing legacy system data with new core banking data. Sample checks, comparisons, and detailed reports help spot any issues [17]. The team must fix any data problems quickly to keep the system reliable.

When to decommission the old core

Decommissioning legacy systems requires proper planning from day one, not as an afterthought. Banks without a clear plan often find old systems running at 10-20% capacity even five years later [18].

The right time to decommission depends on several key points:

• Every customer and product must move to the new platform

• The new environment should work perfectly

• Historical data needs proper archiving

• All regulatory and compliance requirements must stay intact

A solid decommissioning strategy helps banks save costs and get the most from their core modernization [16]. Expert opinion shows that careful planning to remove unwanted processes from the existing core shapes the success of your transformation [19].

The Hard Truth: Modernization Is a Leadership Journey

Leadership decisions make or break every core banking modernization project. Technology transformation is crucial, but the most formidable challenges go beyond code or cloud architecture.

What tech can't solve

Technology alone fails to overcome organizational resistance or unbalanced incentives. By the end of 2022, banks had moved only 15% of their workloads to the cloud [20]. This shows the wide gap between what technology can do and what organizations achieve.

Bank executives often fail to see how core banking modernization touches every part of the business. Success requires more than picking the right vendor. The process demands cultural shifts and unwavering dedication [21].

The most significant problems include taking legacy systems for granted, lacking strategic vision, and treating agile methods like checklists [21]. These human elements cause more failures than any technical limitations.

Questions every executive should be asking

Innovative bank leaders focus on these vital questions:

1. Talent assessment: Do we have enough people with the right skills and experience? Should we get expert advice or train our current staff? [15]

2. Operational impact: How will this change affect our infrastructure, security, operating models, policies, and regulatory reports? [13]

3. Change capacity: Can we handle this transformation while keeping daily operations running?

4. Governance structure: Have we built a governance approach that grows with our modernization trip? [22]

How WAU helps banks move with confidence

Core modernization isn't about rushing into new tech. Leaders choose to act when others prefer to wait. WAU understands what works and what silently damages banks from within.

We take an all-encompassing approach that sees modernization as a complete transformation involving all stakeholders and processes [22]. Successful projects need teams of experts from different fields (data, risk, customer experience).

The core banking system shapes what products and services banks offer customers [23]. The core team's alignment remains the best indicator of modernization success.

Conclusion

The Path Forward: Balancing Technology and Transformation

Our deep dive into core banking modernization reveals a clear truth: legacy cores remain both a technical barrier and a strategic bottleneck. Banks that successfully guide this transformation understand that technology selection is just the visible tip of a much deeper organizational iceberg.

Modernization complexity exceeds the reach and influence of choosing the exemplary architecture or implementation pattern. Successful banks focus equally on people, processes, and technology. They know that transformation fatigue needs active management. Their parallel environments and strangler fig patterns serve as technical strategies and approaches that let their organizations adapt naturally.

Our work with banks of all sizes has shown how decision paralysis stems from perceived risks rather than technical limitations. Many executives fear disruption, but the real danger lies in keeping systems that limit competitive capabilities. Thriving banks see modernization as a continuous trip rather than a one-time project.

Without doubt, soaring wins in transformation share common traits: clear business vision, cross-functional teams with decision-making authority, and leadership that aligns at every level. These banks create space to experiment while they keep operations stable and balance state-of-the-art solutions with their customers' reliability expectations.

Season 2 of The Wau Factor continues those conversations. 👉 Join us, ask the hard questions, and shape what banking will look like in 2030.

Note that orchestrating change across multiple dimensions requires both technical expertise and emotional intelligence. Modernization isn't just about replacing outdated technology—it creates an organization ready for continuous progress. Banks that grasp this fundamental truth will not just survive the next decade of financial transformation—they will define it.

References

[1] - https://www.wau.com/post/the-complete-guide-to-core-banking-system-modernization-in-2025[2] - https://www.forbes.com/councils/forbestechcouncil/2025/01/31/the-role-of-fintech-in-modernizing-legacy-banking-systems/[3] - https://www.pymnts.com/digital-first-banking/2024/three-quarters-of-banks-face-digital-banking-infrastructure-issues/[4] - https://www.thoughtmachine.net/blog/why-microservices-are-the-future-of-banking[5] - https://alphaware.io/api-first-core-banking-solutions-for-fintech-partnerships/[6] - https://kubernetes.io/case-studies/ing/[7] - https://www.synechron.com/en-us/insight/why-kubernetes-power-behind-modern-financial-services[8] - https://learn.microsoft.com/en-us/azure/architecture/patterns/strangler-fig[9] - https://docs.aws.amazon.com/prescriptive-guidance/latest/modernization-decomposing-monoliths/strangler-fig.html[10] - https://bankingblog.accenture.com/strategies-mainframe-core-banking-modernization[11] - https://www.fintechfutures.com/2019/03/flexcube-core-banking-system-gains-new-takers-in-latam-europe-and-asia/[12] - https://www.quinnox.com/blog/how-automated-testing-improves-banking-software-quality/[13] - https://www.oliverwyman.com/our-expertise/insights/2025/may/next-gen-core-banking-modernization.html[14] - https://kpmg.com/au/en/home/insights/2023/04/core-banking-data-migration-coexistence.html[15] - https://www.oliverwyman.com/our-expertise/insights/2024/oct/5-key-considerations-to-transform-core-banking-systems.html[16] - https://www.publicissapient.com/content/dam/ps-rebrand/insights/2023/tips-core-banking-migration/ThoughtMachine-Publicis-Sapient-Whitepaper.pdf[17] - https://stefanini.com/en/insights/news/legacy-system-migration-smooth-transition-to-a-modern-core-banking-platform[18] - https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/tech-forward/how-to-get-a-core-banking-transformation-right-eight-mistakes-to-avoid[19] - https://www.ltimindtree.com/wp-content/uploads/2024/03/Core-Banking-Modernization-Adapting-to-the-Fintech-Revolution-WP.pdf?pdf=download[20] - https://bankingblog.accenture.com/core-banking-transformation-strategies-for-modernization-and-value-creation[21] - https://www.ey.com/en_gl/insights/financial-services/emeia/how-to-avoid-common-pitfalls-when-modernizing-banking-systems[22] - https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/modernizing-core-technology-without-breaking-the-bank[23] - https://www.kansascityfed.org/research/payments-system-research-briefings/core-banking-systems-and-options-for-modernization/