Your Bank Isn’t Modernizing Fast Enough. Here’s How to Step on It

By Jody Bhagat, president, North America, Engine By Starling

Published on April 24th, 2026 in Banking Technology

Simple Subscribe

Subscribe Now!

The banking industry is splintering. Before sounding like a doom-monger, let me clarify: This is no bad thing.

The three categories I see the industry now splitting into are:

Progressive modernizers, like Tangerine, the digital arm of Scotiabank.
Born digital trailblazers, such as Chime and Starling.
Legacy banks, at least, those addressing their core tech proposition to achieve more agile operations.

Key insight: Mid-sized banks in the U.S. must improve their efficiency significantly within three years to be able to compete, stay relevant, and capture market share. For a mid-sized $25 billion-asset bank, a 5% efficiency gain equates to around $40 million in annual earnings. That is capital that can be reinvested into driving your bank’s growth.

Modernization is the only route to this gain. The path forward for banks now requires a clear departure from the constraints of legacy banking technology. To compete, leaders must stop patching up old technology and embrace digital-first architecture.

Pressure on legacy banks continues to rise as challengers are granted banking licenses across a number of markets. In January, for example, Nubank secured conditional approval to establish a U.S. banking presence and in March, Revolut secured a full U.K. banking license.

The competitive starting gun has been fired.

Need to Know:

Banks must understand the limits of legacy technology. Modernization is inevitable. The question is: Which modernization method is best for individual banks?
Success requires choosing between hollowing out the core, a progressive modernization approach, or a clean slate.
Modern infrastructure has allowed banks like the U.K.’s Starling to operate with low operating expenses and high levels of efficiency.

Method 1: Progressive Modernization

Where one-and-done tech updates are perceived as too risky for some, incremental modernization methods have become the industry standard for balancing embracing innovation with proper risk management.

For example, a bank can update the tech driving its savings products first, followed by payments. The overall goal is to phase out the old system until it can be turned off completely.

Tangerine’s modernization program, in partnership with Engine by Starling, will begin within a defined segment of the business, with the intent to expand more broadly across its more than two million customers, within an efficient timeframe.

Bottom line: This method can deliver consistent return on investment and lower failure rates by upgrading specific products without disrupting the stability of the entire institution.

The roadmap:

• Plan your migration by domain, starting with high-impact, low-complexity units, like savings, to become comfortable with the model.

• Deploy an integration gateway to intercept and route requests, seamlessly shifting transactions from the old mainframe to the new cloud core.

• Set rigid decommission dates for each legacy domain to prevent the ballooning costs of operating dual systems.

-- Article continued below --

Method 2: Hollowing Out the Core

Hollowing out the core is a common modernization method for banks across the U.S. Instead of a risky rip-and-replace of old systems, banks can move complex rules — such as how they approve loans or calculate fees — onto a modern, flexible middle layer. By separating the business logic from the old hardware, financial institutions can launch new digital features in weeks, rather than waiting years for a mainframe update.

Bottom line: This is arguably the quickest method for Tier 1 banks to launch modern features in weeks, bypassing the five-year mainframe update cycles that threaten to stall innovation.

The efficiency gains:

• Moving complex rules to a modern layer allows banks to launch products quickly, bypassing slow, multi-year update cycles.

• A modern, digital bridge connects old data to new software, removing the friction typical of aging legacy hardware.

• Freeing up the old system for complex tasks turns it into a simple record-keeper, drastically cutting the risks and costs of maintaining it.

Method 3: Digital-Led Expansion

Instead of fixing the bank’s old systems, digital-led modernization involves building a brand new entity on the side. This model allows banks to pilot innovations and hyper-personalize user experiences at a fraction of the traditional cost.

Chime is the ultimate U.S. benchmark here. By starting with a clean slate and cloud-native foundations, it has captured over 9.5 million active users. Similarly, Starling’s cloud-native architecture has enabled the bank to bring seamless banking experiences to its 4.6 million personal and small business customers, setting an efficiency benchmark with per-customer operating expenses of under $60.

Bottom line: This method removes legacy constraints, allowing for the immediate use of modern technology to achieve a low efficiency ratio and accelerate speed-to-market.

The roadmap:

• Launch the new offering as a sidecar to test fast deployment cycles without putting the main bank at risk.

• Build the sidecar with architecture designed to eventually house the main bank’s migrated customer data.

• Leverage the high margins of the new digital bank to fund the decommissioning of the old legacy infrastructure.

-- Article continued below --

Fortune Favors the Brave

The future of banking belongs to those willing to move to digital, cloud-based core banking systems. A total transition is not just a technical upgrade — it’s a fundamental shift in a bank’s business and operations.

The rapid development of AI has accelerated timelines for delivery. Proactive modernizers will see AI’s benefits, but those who delay will struggle to retro-fit AI into outdated infrastructure.

The time for maintaining legacy systems has passed. This modernization imperative is an operational demand to drastically reduce inefficiency, and provide the agility needed to outpace competition and new entrants in the fast-moving U.S. banking industry.