UK banks face GBP £3.3bn tech bill as legacy systems creak

New research indicates that UK banks are spending a significant proportion of their IT budgets on maintaining core banking systems, despite growing challenges related to system outages and regulatory pressure.

According to data from SaaScada's latest report, The Great Cloud Con: From Cloud-Washed Imitation to Cloud-Native Innovation, 24% of IT budgets across the UK banking sector are devoted to managing core banking infrastructure. This equates to an estimated sector-wide spend of GBP £3.3 billion in 2026.

The research, based on a survey of 150 UK banking innovation leaders, reveals widespread frustration with the burdensome costs linked to legacy platforms. Over half (53%) of respondents described their core platforms as a "bottomless pit" for spending time and money, and 65% said hidden costs pervade their current systems. In addition, 59% admitted to feeling infuriated by having to pay third-party vendors for small feature changes - an area costing banks an average of GBP £1.5 million annually in fees.

Ongoing issues

Banks' core systems are under increasing strain as demand for digital banking services continues to rise. Sixty-eight percent of those surveyed say their digital infrastructure is being stretched to capacity, with half conceding that their core banking systems are struggling to keep up with requirements.

More than half (54%) reported that "cracks are widening" within their core banking environments, with escalating costs, technical failures, and customer frustrations. Within the sector, 53% of respondents have dealt with outages and system downtime tied to core issues. Of these, 42% noted higher IT expenses and recovery costs due to system failures.

Transaction-related incidents are also prevalent. Thirty-eight percent of banks experienced delays in transaction notifications, 33% have encountered transaction failures, and 28% saw cases of duplicated, lost, or incorrect transaction data within their systems - problems that can expose customers to risks such as fraud.

Regulatory scrutiny has also increased. Nearly a quarter (22%) of those surveyed disclosed receiving warnings or fines from regulators, cited for lapses in uptime and data protection obligations.

Industry perspectives

The ongoing costs of managing a core banking system are a severe drain on banks. For some, it could potentially be "game over" if the status quo continues. Legacy core systems are breaking, and things will only get worse. In extreme cases, the combined expense of managing staff and the technology stack have almost doubled the cost of core banking installation projects, at the same time as systems are creaking and breaking. Banks are right to be feeling angry and ripped off.

Steve Round, President and Co-Founder at SaaScada, highlighted the impact on both operational budgets and future project costs. He added that the situation has led many in the sector to question the sustainability of current approaches.

Multi-core approaches

Faced with the dual challenges of mounting costs and infrastructure risk, most UK banks are pursuing multi-core strategies to modernise more safely. The research shows that 82% of banks now operate both old and new core systems in parallel, aiming to accelerate modernisation while minimising business disruption.

In the survey, 76% of respondents said that adopting a multi-core model helped streamline regulatory reporting and simplify operations. Seventy-three percent believe such a model is the safest way to reduce legacy system dependence, and 72% said the strategy makes it easier to integrate new technologies, including artificial intelligence, without subjecting critical operations to additional risk.

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.

Round reiterated the need for cloud-native solutions to ensure that parallel systems deliver real benefits, rather than just adding another layer of complexity and cost.

Findings are based on data collected in March 2025 from UK-based heads of digital transformation, chief technology officers, chief innovation officers, and other product innovation leaders at retail and business banks, with balance sheets ranging from GBP £0.5 billion to GBP £100 billion.