What are legacy systems?

Legacy systems are outdated software and hardware infrastructures that were developed decades ago but continue to support critical business operations across industries such as banking, aviation, healthcare, and government agencies. These systems typically run on mainframe computers using older programming languages and feature monolithic architectures.

In banking, legacy systems are particularly important as they handle core functions such as transaction processing, account management, and record-keeping. Many banking legacy systems rely on COBOL (Common Business-Oriented Language), a high-level programming language developed in 1960 for business data processing that still powers over 40% of core banking systems today. Banks remain dependent on these systems due to the enormous complexity and risk involved in replacing infrastructure that processes millions of daily transactions, plus the substantial costs and multi-year timelines required for complete system overhauls.

How are banks modernizing legacy systems in 2025?

Organizations typically pursue three main approaches when modernizing legacy systems, each with distinct trade-offs between risk, cost, and implementation complexity:

• Incremental change – Making gradual feature updates and small functionality improvements to existing systems without disrupting core operations, allowing organizations to modernize piece by piece over time
• Progressive modernization – Using digital wrappers, APIs, and middleware to create modern interfaces while keeping legacy systems running underneath, enabling cloud compatibility and new capabilities without replacing the core infrastructure
• Complete system replacement – Rebuilding the entire system from scratch with modern technology, which offers the most comprehensive modernization but involves the highest risk, cost, and implementation timeline

The modernization process itself is being transformed by new technologies. AI is playing a crucial role in modernization efforts, with generative AI being used to reverse-engineer and modernize outdated COBOL code by translating it into modern programming languages. Banks are also leveraging cloud technologies to reduce infrastructure costs and improve scalability. Many institutions are implementing hybrid solutions that combine cloud capabilities with existing mainframe systems to minimize disruption while gaining modern functionality.

What challenges do legacy systems create for banks?

Legacy systems present multiple operational challenges that hinder banks from competing effectively in the digital marketplace. Currently, 90% of banking core software in the US is considered legacy, creating widespread barriers to digital transformation and AI integration across the industry. Technical debt accumulation makes these systems increasingly expensive and labor-intensive to maintain, especially amid the current IT talent shortage. The aging workforce of COBOL programmers creates a skills gap that makes system maintenance both difficult and costly.

A 2024 report from 10x Banking found that 55% of banks cite legacy system limitations as their biggest barrier to achieving business goals, with 53% struggling to scale operations due to data silos and production bottlenecks. These systems also struggle with AI integration, preventing banks from leveraging automation for improved efficiency and customer experience. Additionally, legacy architectures make it challenging to deliver the omnichannel experiences that modern customers expect across mobile, online, and in-person interactions.

Why do banks continue using legacy systems despite modernization benefits?

Banks maintain legacy systems primarily due to their proven reliability in handling mission-critical operations and the substantial risks associated with replacement. Many core banking functions still rely on COBOL-based mainframe systems that process millions of transactions daily with exceptional stability and security. The “if it’s not broke, don’t fix it” mentality persists because these systems have successfully supported banking operations for decades.

Modernization faces organizational resistance, long development timelines that can take years to complete, and the tendency for regulatory and compliance requirements to take precedence over modernization efforts. The central position of core systems in banking architecture means any changes could have widespread impacts across all bank channels and operations. Additionally, the cost and complexity of total system replacement often make incremental improvements seem like the safer choice, even though this approach increases long-term technical debt.

How can banks leverage modern lending platforms to overcome legacy system limitations?

A modern lending platform like Jifiti’s white-labeled, modular solution enables banks to digitize and embed lending capabilities without requiring complete legacy system replacement. Banks can integrate only the components they need to modernize specific lending processes while maintaining their existing core infrastructure. This approach reduces the risk and complexity typically associated with full system overhauls.

These platforms offer omnichannel deployment capabilities, allowing banks to extend lending beyond traditional channels into embedded environments like merchant point-of-sale systems. The modular architecture supports various loan products including installment loans, lines of credit, and BNPL programs under a unified system. This enables banks to respond quickly to market demands and customer expectations for digital lending experiences while preserving the stability of their legacy core systems.

Key takeaways

• The shortage of legacy system expertise makes modernization increasingly urgent, as maintenance costs continue rising and qualified professionals become scarcer
• Organizations typically choose from three modernization approaches: incremental change, progressive modernization, or complete system replacement, each offering different risk-reward profiles
• Modern lending platforms provide a pathway to digitization without complete system replacement, enabling banks to maintain stability while gaining competitive capabilities
• Jifiti’s modular lending platform allows banks to selectively modernize customer-facing lending processes while preserving critical legacy infrastructure, reducing modernization risk and complexity