Banks waste 70% of IT budgets on legacy tech – is AI the answer?

Banks are spending 70% of their IT budgets just to maintain outdated legacy systems, stifling innovation and driving up costs. A new RS2 whitepaper reveals why traditional upgrades fail—and how AI-powered orchestration layers offer a smarter path to modernization. With the ISO 20022 deadline looming, banks must act now to stay competitive.

Editorial Team
April 2, 2025
3 minutes

New RS2 whitepaper highlights how legacy systems stifle innovation and proposes AI-enabled solutions

Legacy banking systems are draining financial institutions of critical resources, with a staggering 70% of banks’ IT budgets dedicated to maintaining outdated technology, according to a new whitepaper by global payments processor RS2. The report, titled How to Solve Banks’ Legacy System Challenges While Controlling Risk, explores the heavy toll legacy systems take on efficiency, innovation, and digital transformation, while proposing AI-driven orchestration layers as a strategic solution.

The legacy system burden: a costly hindrance to digital transformation

The research highlights key challenges posed by legacy infrastructure, including:

Reduced efficiency: Aging systems require extensive maintenance, leading to operational inefficiencies and slow service delivery.
Escalating operational costs: The expense of patching outdated technology outpaces investment in innovation.
Inability to meet digital expectations: Customers now demand seamless, data-driven services that legacy systems struggle to deliver.

A recent industry survey cited in the whitepaper reinforces this concern, with over 50% of banks identifying their existing core systems as the primary barrier to achieving business objectives.

The pitfalls of “patch and upgrade” approaches

Many banks attempt to modernize by layering upgrades onto existing systems—a strategy that RS2 warns is inherently flawed. This fragmented approach results in siloed platforms, increasing complexity rather than streamlining operations. Instead of debating whether to build, buy, or partner for new technology, RS2 argues that banks should shift toward AI-powered orchestration layers, which enhance existing systems without the high cost and risk of a complete overhaul.

The AI-powered solution: orchestration layers for smarter banking

RS2’s research advocates for AI-driven orchestration layers as a game-changer for modern banking. These intelligent solutions optimize operations by:

Routing transactions efficiently to lower processing costs and increase authorization rates.
Enhancing fraud detection and risk management with AI-powered scoring and real-time monitoring, reducing chargebacks and improving compliance.
Unlocking deep customer insights for personalized promotions, competitive pricing, and predictive engagement strategies.
Streamlining compliance and reporting through automated AML and KYC checks, significantly reducing manual workloads and regulatory risks.
Boosting system reliability with predictive analytics to minimize downtime and optimize resource allocation.

RS2’s call to action: innovation over maintenance

Commenting on the findings, RS2 CEO Radi El Haj emphasized the urgency for banks to rethink their IT strategies:

“The insights in our research make it clear: banks cannot afford to continue patching outdated systems while the financial landscape evolves around them. Instead of investing their IT budgets in maintenance and patching, banks must prioritize and allocate their investments in innovation and new products if they want to stay ahead.”

He continued:

“We’ve explored how AI-enabled orchestration layers offer a smarter path forward—one that modernizes operations in a phased approach, mitigating risk while unlocking new efficiencies. By implementing this strategy, banks can enhance customer engagement, optimize performance, and drastically reduce operational costs, all without undertaking disruptive system overhauls.”

The countdown to change: november 2025 ISO 20022 deadline

With the ISO 20022 migration deadline approaching in November 2025, banks must act swiftly to modernize their infrastructure. RS2’s whitepaper provides a strategic roadmap for institutions looking to break free from legacy constraints and embrace AI-driven banking solutions.