UK banks are spending up to a quarter of their IT budgets to keep the legacy systems they rely on running smoothly, resulting in a ‘bottomless pit’ of billions spent on core banking management and maintenance.

Banking engine SaaScada’s latest report, The Great Cloud Con: From Cloud-Washed Imitation to Cloud-Native Innovation, exposes the soaring costs of outdated legacy platforms, revealing that banks are sinking 24% of their IT budgets – £3.3 billion a year – just to maintain their core systems.

Based on a survey of 150 UK banking leaders, the research shows that these overheads are leaving little room for innovation, with more than half (53%) describing their core as a serious drain of time and money, and 65% agreeing that core banking is riddled with hidden costs.

Moreover, 59% feel ‘infuriated’ at having to pay third parties to make minor feature changes to their own core banking system, with banks spending an average of £1.5 million each year on third-party fees.

But despite ploughing endless cash into their core, the report found that legacy systems are buckling under mounting pressure. 

Nearly seven in ten banks (68%) said growing demand for digital services is putting a strain on their infrastructure, with half of banks admitting their core banking system simply can’t keep up, while 54% said that the ‘cracks are widening’ as costs, failures and customer frustrations increase.

Among the most severe issues in relying on legacy systems is the increased risk of outages and downtime, reported by 53% of banks and resulting in 42% facing higher IT and recovery costs to fix system failures.

It can also lead to transaction failures, with the study showing that 38% of banking leaders have reported delays in customer transaction notifications, 33% seeing transaction failures, and 28% suffering from duplicated, lost or inaccurate transaction data.

To tackle the problem, 95% of banks have moved part of their core systems to the cloud, or are heading that way, however, cloud technology does not seem to be living up to its promise, with more than half (57%) of UK banking leaders tired of so-called ‘cloud-washing’, claiming that most cloud core banking services is simply old tech with a new label.

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Instead, to reduce the costs and risks of managing core banking systems, most banks (82%) have now adopted a multi-core approach.

According to SaaScada, by running a new core alongside the old, banks are finding they can modernise faster without exposing themselves to wholesale disruption, with 73% believing it’s the safest way to reduce reliance on legacy systems, and 72% saying it makes it easier to integrate new technologies like AI.

“Legacy core systems are breaking, and things will only get worse,” said Steve Round, president and co-founder of SaaScada.

“With millions of customers relying on them, banks cannot afford to risk even a moment of disruption. Ripping out historical systems wholesale is like performing open-heart surgery while the patient is still walking about. 

“The smarter route is dual-core co-existence – where banks can innovate and migrate in parallel without interrupting service or introducing new risk. But this only works if one of those cores is truly cloud-native. Otherwise, you’re not modernising, you’re just running two cores on different infrastructure, creating complexity with none of the benefits.”