Core Banking Systems evolution to cloud technology: By John Bertrand
Historical
Core banking systems can trace their origins 50 years ago to independent, branch-specific solutions running on IBM computers using legacy languages like RPG, COBOL, and Assembler. The branch bank industry consolidated around two major players - Temenos' Globus and Finastra's Midas - each serving over 300 banks, often with many installations as banks became more international. Banks followed their customers who at the time were in countries with limited communication infrastructure. Many systems were designed to incorporate the local banking and regulatory environments.
A striking example of this fragmented approach one major bank discovered it had 250 different core banking systems all branded the same but functionally very different. This was compounded by many installations continued to run past software releases instead of updating to the current release. Further compounding the situation was coders were using poor documentation practices.
Market Disruption and New Entrants
The landscape began shifting about a decade ago with new fintech challengers like Thought Machine (2014) and 10x Banking (2016) entering the market, promising more modern, cloud-native solutions to challenge the established players.
Technology Transformation Drivers
Several technological shifts are reshaping the industry:
Infrastructure Evolution: The move to cloud computing, ubiquitous mobile connectivity (90% UK mobile ownership), API-driven architectures, and component-based systems is starting to replace monolithic legacy infrastructures.
Instant Payment Revolution:
Domestic instant payments are available in 70 countries and being mandatory in EU, representing 27 countries, from October 2025
Instant international payments with real-time currency exchange capabilities are on its way and will include crypto currencies
Enhanced digital verification and confirmation of payee services are being put in place with UK added reimbursement for scammed clients shared 50/50 by banks
Data Richness: The October 2025 global adoption of ISO20022 will transform payments from simple "coded postcards" to rich "electronic pamphlets" containing extensive transaction, sender, and risk data. The traditional infrastructure uses only minimal information around the payment with truncation common along the payment path.
Current Market Performance
The financial performance of major players reveals interesting trends:
Temenos: £3.9 billion market cap, £940 million revenue (2024), 5% annual growth over three years, with 66% revenue from high-margin maintenance contracts.
Finastra: Private and formed from number acquisitions, has seen revenue declined from $2.2 billion in 2017 to $1.85 billion (2023). The workforce reduced from 10,000 to 7,000 people but maintaining profitable maintenance streams.
Thought Machine: £48 million revenue (2023), 14% average growth, £583 million in investment funding through 2024.
The Strategic Pivot to Cloud Components
The industry's strategic shift toward componentization is on the way. Rather than wholesale replacement of core banking systems. This faces regulatory resistance and internal operational risk. The industry is moving toward a hybrid model. Here cloud-based components gradually assume specific functions while the corresponding legacy system features are deactivated.
This approach offers several advantages:
Reduced migration risk
Regulatory approval (satisfying concerns about systemic risk)
Gradual modernization without system-wide disruption
Preservation of existing maintenance revenue streams
Maintenance Revenue Dependency
Established players rely heavily on maintenance revenue from legacy systems. It is a highly profitable annuity scheme. This creates both stability and vulnerability. A steady income is provided. The challenge is keeping the bank meeting the new standards of money movement, real time account balances and people verification. It creates the need for programmers skilled in ancient languages (Midas alone has over 25 million lines of RPG code).
Evolution not Revolution
While core banking faces significant modernization pressures, the path forward lies not in revolutionary replacement but in evolutionary componentization. This allows the banks to modernize gradually and quickly while managing risk and regulatory requirements.
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