The financial industry runs on two things: trust and timeliness. But behind the sleek front-end experiences banks and lenders present to consumers, many institutions are still powered by outdated infrastructure – systems built decades ago that are increasingly misaligned with the demands of a real-time, digital-first economy.
Meanwhile, new fintech disruptors and nonbank lenders have surged ahead, leveraging AI-driven, cloud-native platforms to deliver faster, more personalized services at lower costs. Traditional institutions, on the other hand, remain shackled to fragmented and high-maintenance legacy systems that slow them down and erode their competitive edge. This gap is widening. And for financial institutions, it’s a growing business risk.
“There’s a lot of opportunity in the margins that goes under addressed,” explains Bharath Muddarla, a Senior TIBCO Engineer and IEEE Senior Member, who has spent over a decade modernizing financial systems. “Right now, it’s only costing them money. In the long run, it could mean their position in the market.”
Legacy Infrastructure—and Its Risks
Banks and lenders burdened by outdated systems are paying the price in both operational inefficiency and lost market share. The numbers are telling: traditional banks already spend significantly more per closed mortgage than nonbanks, largely due to inefficiencies in their lending processes. As interest rates remain high and mortgage origination volumes shrink, that cost of inefficiency is becoming unsustainable.
The issue is also about systemic fragility. Many traditional institutions still rely on batch processing, siloed databases, and manual workflows designed for a pre-digital era. These systems weren’t built for instantaneous data processing, or the scale required in today’s financial markets. And while these inefficiencies may have been manageable in a less competitive landscape, they are now exposing institutions to greater financial and operational liabilities.
Mortgage lending is a prime example. Despite customer expectations for instant approvals and seamless digital experiences, most mortgage applications are still processed through outdated, labor-intensive workflows. These systems rely on on-premise SQL databases, disjointed risk assessment tools, and compliance processes that aren’t designed for automation. The result is slower turnaround times, increased error rates, and a cumbersome borrower experience.
Muddarla has seen firsthand how these inefficiencies impact financial operations. In one case, he led a major modernization of a post-purchase mortgage platform, integrating cloud-based automation and event-driven architecture. The result was the removal of long-standing bottlenecks in the loan review process, faster turnaround times and, most importantly, improved compliance accuracy. Changes such as these proved instrumental during the pandemic, when financial institutions that had already begun modernizing their infrastructure were able to respond to economic shifts quickly.
The same inefficiencies plague other areas of finance, including trading. Markets move in milliseconds, and institutions that still rely on legacy data pipelines risk losing out on critical opportunities. Latency and inefficiency in decision-making introduce avoidable, volatile risks in an industry where proximity to data centers and packet size can mean the difference.
Financial leaders should be asking themselves: How much hidden inefficiency exists within our systems? And are we prepared for the next wave of market disruption?
The Risk of Standing Still
For many financial institutions, the hesitation to modernize stems from the perception that overhauling infrastructure is too costly, too complex, or too risky. But the reality is that maintaining legacy systems is already expensive—and those costs are escalating.
The bigger risk is in delaying change. Traditional banks and lenders that resist modernization aren’t just facing rising operational costs—they’re falling further behind. A 2024 PYMNTS report showing three-quarters of banks struggled with implementing new digital solutions, highlighting just how unprepared many are for the shift toward a digital-first finance.
Muddarla emphasizes that modernization doesn’t have to be disruptive—it just has to start. In another instance, he led the transition to an event-driven data architecture within a major investment organization, delivering real-time access to critical market data. This allowed for investment decisions without the discrepancies or latency risks that had led to inefficiencies in the legacy architecture.
These are the kinds of strategic shifts that define new market leaders. Institutions that prioritize API-driven architectures, automation, and cloud computing will not only lower their operational costs—they’ll also future-proof their ability to scale and adapt. Those that fail to act will find themselves in an even weaker position when the next economic downturn hits.
Modernization as a Market Opportunity
The financial industry is at a crossroads. Rising interest rates, tighter lending conditions, and increasing regulatory scrutiny are forcing institutions to reassess their operating models. “Financial institutions have a small window to act before going digital becomes a barrier to entry,” Muddarla warns.
For executives, investors, and financial leaders, the question is no longer whether modernization is necessary—it’s how long they can afford to wait.
