The development of the IT landscape is a key challenge for IT managers in banks. The focus is on the core banking systems. The renewal process is made difficult owing to the outdated legacy systems, regulatory requirements and increasing complexity. New technologies such as cloud, APIs, AI and microservices offer opportunities for flexibility and efficiency. Banks must make strategic decisions between system modernization or replacement. They must consider costs, risks and aims.

Background
IT managers in banks face significant challenges, especially when dealing with core banking systems that are often based on outdated technologies. These systems are the backbone of bank IT. They are typically stable and reliable but difficult and expensive to maintain and to adapt. Regulatory requirements, such as DORA for IT resilience, increase the pressure. The systems must meet strict compliance requirements. In the legacy systems, this requires a great effort. This make modernizing core banking systems necessary, but the complexity and risks make the process remains an enormous challenge.
Modernizing core banking systems by integrating modern applications is an attractive route to gradually transform the outdated IT infrastructure. Modern applications deliver user-friendly and flexible interfaces that appeal to both customers and employees. They enable innovative features such as personalized dashboards, real-time data visualization and mobile accessibility without replacing the underlying core system. However, there are challenges: The integration of modern applications requires a seamless connection to the often monolithic and complex legacy systems. Therefore, successful modernization requires not only technical know-how but also a clear strategy.
Strategic aspects

Strategic approach and technological solutions are both crucial to the success of modernization projects:
♻️ Modernization vs replacement: Modernization vs replacement is the key strategic decision. Modernization – means extending existing systems with APIs or frontends/middleware. It enables more cost-effective and gradual adaptation and carries lower risk. Replacement is the complete replacement of a system. It delivers comprehensive transformation and more flexibility and innovation in the long term. However, it requires higher investment and carries greater risk during the transition.
💰 Cost-benefit analysis: IT managers must ensure that modernization projects not only solve short-term problems but also bring long-term benefits. These can be reduced operating costs and/or increased customer satisfaction. Many banks faced the challenge of a historically grown, heterogeneous IT landscape with high maintenance costs and long implementation times. It makes strategic sense to reduce the complexity of the system landscape, use economies of scale and place greater reliance on standardized solutions.
🔒 Regulatory compliance and risk management: Modernizing a core banking system carries significant risks. These include data quality, system failures or project delays. An effective data strategy is essential to the success of a modern core banking system. The data must be protected, efficiently managed and made available for analysis. Regulatory requirements (like data protection, IT security) must be included in the planning at an early stage.
🤝 Change Management: The introduction of new technologies demands cultural changes within the organization. Employees must be trained to use their new tools effectively. A change or expansion of the core banking system has a major impact on the organization, processes and employees. Therefore, the bank needs comprehensive change management.
Collaboration with Fintechs or product manufacturers can help banks to introduce innovative technologies more quickly and to develop new business models.
Technological aspects

The modernization of core banking systems offers a wide range of technical options to equip banks in the digital age. The IT infrastructure within which the core banking system operates is a key aspect. The introduction of cloud technologies and the use of software-as-a-service (SaaS) improve flexibility, scalability and cost efficiency. Cloud-based systems assist in bringing new products to market and reduce the need for local hardware. A gradual modernization, in which legacy systems are supplemented by hybrid approaches, can also help. This minimizes risks and ensures continuous operation during the transition. Overall, these technologies deliver a future-proof IT infrastructure that helps banks work more efficiently and meet increasing customer demands.
The spread of cloud-based core banking systems and SaaS applications with additional technologies gives banks new opportunities to modernize their IT landscape. In our view, the most important drivers are:
🔗 API management and open interfaces: APIs (Application Programming Interfaces) allow banks to connect their core systems with third-party services or new applications. Open interfaces foster innovation and facilitate the introduction of new services such as embedded finance.
🧩 Modularization and microservices: In contrast to monolithic systems, microservices allow modularization of core banking systems. Each functionality is developed as a standalone service. This makes any changes easier to implement. This approach increases agility and reduces dependency between various system components.
🤖 Automation and Artificial Intelligence (AI): Artificial intelligence can automate processes such as fraud detection or credit scoring, leading to greater efficiency. AI can also help optimize data migration by recognizing patterns and minimizing errors. Robotic Process Automation (RPA) automates repetitive tasks in the back office, improving efficiency and accuracy.
Conclusion
🎯 Modernizing core banking systems is one of the key challenges, if banks are to remain competitive in the digital age. Regulatory requirements and rising customer expectations increase the pressure but outdated legacy systems hinder innovation and reduce efficiency. However, modern technologies such as APIs, cloud solutions, microservices and AI offer promising approaches to increase flexibility, scalability and cost efficiency. Strategically, the bank must decide: should they modernize the existing system or replace it? They must carefully analyze the opportunities and risks associated with both approaches.
🔥 Banks should act now to make their IT landscape future-proof. Start with a comprehensive inventory of your systems and develop a clear modernization roadmap. Use modern technologies step by step and rely on strong partners such as UNiQUARE 🤝. This is the only way to remain competitive in the long term while meeting compliance and customer requirements.
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Note: AI support was used in the creation of the basic version of this article (GPT-4o) and the article images (FLUX.1).