Plugging The Great Banking Expectation Gap

For years, core modernisation has occupied a peculiar position on the banking agenda. Its importance isn’t disputed, yet much of the industry remains dependent on legacy technology

There are good reasons for that. Replacing technology responsible for deposits, lending, payments and other mission-critical processes is fundamentally different from refreshing a customer-facing application. Banks operate within demanding regulatory environments, carry enormous quantities of sensitive data and are expected to provide services continuously and reliably. Failure is not an option, and system migration is seen as high risk.

But standing still carries a major risk of its own. And new research by Celent on behalf of banking technology provider Temenos, dramatically illustrates just how big a threat it’s become.

The Banking Expectation Gap report looks at the chasm that’s opened between the experience consumers look to their bank to provide and the technology foundations that financial institutions have in place to deliver it. 

The dissatisfaction has been there for a while. What’s changed is customers’ willingness to do something about it.

The report revealed that nearly three-quarters of customers who are still with their banks are open to moving if a competitor better meets their needs.

Importantly, the battle for this large ‘switchable middle’ isn’t just being fought on the familiar grounds of rates, fees and pricing. Customers still want the best value. But they also want personalisation in digital channels and the products, services, advice and rewards they receive. Speed, convenience and absolute security and protection in every interaction are table stakes for them.

 Temenos says addressing all this simply isn’t possible on legacy infrastructure that wasn’t built for the challenge of the Banking Expectation Gap. Rip and replace increasingly is not the answer, either. 

Instead, many banks are now choosing progressive modernisation: a composable approach that allows institutions to tackle particular areas of friction first and introduce capabilities incrementally

“Progressive modernisation reduces risk by allowing banks to modernise in stages, preserving operational stability while introducing new capabilities,” says Will Moroney, Chief Revenue Officer at Temenos. “They can move at their own pace, maintain control, and realise value sooner."

It completely changes the business case for transformation. Rather than waiting years for the theoretical benefits of a vast new infrastructure programme and finding the dollar to support it, Temenos says institutions that have taken this route are seeing rapid payback in priority areas. That’s given them confidence to address the remainder of their IT estates.

“Our priority is helping them modernise with confidence,” says Moroney. “Banks need to balance innovation with resilience and regulatory compliance.”

Importantly, those customer boxes get ticked quicker, closing the Banking Expectation Gap. 

Given the diminishing levels of loyalty among customers, the fact that a quarter of banks told researchers that enhancements to CX were not a priority for them is somewhat surprising. But behind that was a wide variation of investment strategies across regions and types of banks. 

Banks in APAC gave investment in CX the highest priority, while medium-sized banks everywhere struggled to move it up the agenda. In Europe, only 29 per cent of medium-sized banks placed product innovation in their Top-3 technology investment priorities, compared to 63 per cent of larger banks and 50 per cent of the smallest.

“Clearly, mid-sized banks are challenged to prioritize many of the features customers say are factors in choosing a primary bank,” the report observed.

But one thing they were all agreed on. Across the piece, banks cited legacy platforms as a big constraint on their ability to enhance product and service experiences quickly and cost effectively.

There was an imperative, the report said, for ‘legacy modernization and platform replacement to reduce long-term spend on maintenance and to increase innovation agility in the future’.

Cloud infrastructure could help rebalance the equation between what customers want, what banks can deliver and what they can afford, while also offering the scalability and resilience banks seek. 

But perhaps the most powerful, liberating new force pushing the modernisation conversation forward is AI.

Artificial intelligence has given banks an expanding catalogue of potential capabilities, from automating operational processes to delivering personalised financial guidance and conversational customer experiences. But Temenos believes it has also exposed a fundamental constraint.

AI applications are only as effective as the infrastructure, data and processes supporting them. Ambitions to deploy increasingly sophisticated intelligence can therefore collide with technology estates constructed long before generative AI was released into the world.

“AI is helping move the legacy conversation forward because it highlights the growing gap between what banks want to deliver and what their technology foundations can support,” says Moroney.

Modern platforms can not only provide the foundations to scale AI internally, improving employee productivity and accelerating innovation. It also means banks can meet demand for personalised customer guidance, proactive services and more natural digital interactions.

It’s straightforward, says Moroney: “You cannot deliver next-generation customer experiences on last-generation banking infrastructure.”

Banks haven’t suddenly rediscovered the customer, but there is an argument to say they’ve been overlooked as regulatory change, operational resilience, cybersecurity and legacy modernisation, all compete for capital and executive attention.

Temenos believes that’s the wrong approach.  

“The banks that succeed will be those that view modernisation not as a technology project, but as the foundation for delivering the personalised, intelligent experiences customers increasingly expect,” says Moroney.

The technology that will make that shift of emphasis possible is AI.

But bank executives understandably want evidence that investment can reduce costs, improve productivity, generate revenue or materially improve customer outcomes. And, preferably, all four of those.

For Temenos, the best way to validate that, is to narrow the problem rather than expand the ambition.

“The biggest benefits are coming from identifying very specific pain points and use cases and then building agentic AI capabilities to solve these,” says Moroney

One example is financial crime compliance, where enormous volumes of alerts can translate into substantial manual workloads. 

Temenos points to its Financial Crime Mitigation AI Agent, developed with a Tier 1 European banking client and designed to reduce false positives during sanctions screening.

The economics of financial crime compliance remain heavily people driven. Every unnecessary alert can create another investigation requiring human time and expertise. Reducing false positives allows compliance professionals to spend less time clearing routine alerts and more time investigating higher-risk cases.

It also illustrates a broader principle: automation does not necessarily mean removing humans from the process.

Consumers themselves appear reluctant to embrace an exclusively AI-driven financial future. And that raises an important organisational question: if AI can assume a growing number of tasks, which decisions should machines make and where should people remain firmly in control?

Temenos sees the dividing line in terms of risk, complexity and judgement.

“AI works best for clear, repeatable tasks where the rules are well understood, access is controlled, and there is a clear route to escalate when needed,” says Moroney.

Higher-risk decisions are another matter. “People still need to make the call on higher-risk decisions, exceptions, customer-impacting actions and anything with regulatory, financial or reputational implications.”

That potentially reshapes rather than shrinks the banking workforce. By delegating repetitive processes to AI, employees can devote more attention to judgement, advice and relationships – areas where human trust remains particularly important.

It also places governance at the centre of agentic banking. Giving an AI agent the ability to act is fundamentally different from asking a chatbot to generate text. As systems gain agency, permissions, escalation, auditability and accountability become increasingly important

For Temenos, successful AI adoption therefore requires modern core platforms and Cloud infrastructure alongside strong governance and organisational readiness. Speed cannot come at the expense of trust or resilience.

Cloud – without surrendering control

The same tension is often seen in Cloud adoption. Banks increasingly depend on external technology and Cloud providers while regulators scrutinise cyber resilience, third-party risk and concentration across critical technology services.

Temenos continues to offer on-premise as well as software-as-a-service (SaaS) and hybrid solutions.

Working across AWS and Microsoft Azure, it allows institutions to select infrastructure according to their strategic and regulatory requirements. Choice is an important part of the proposition.

“And not just offering choice but helping banks use that choice to modernise with confidence,” says Moroney. “Banks want the foundation and freedom to evolve and scale on their terms.”

Composable banking theoretically makes it easier for institutions to replace individual technology components rather than commit to monolithic platforms for decades. For established core providers, that creates an intriguing strategic challenge: the architecture designed to give customers greater flexibility also makes the ability to change suppliers a feature rather than a threat to be engineered away.

For Temenos, the best providers going forward will compete on outcomes rather than client lock-in. It points to its combination of mission-critical technology, open architecture and expertise spanning core banking, digital, payments and wealth as key differentiators.

“Banks ultimately want technology that helps them grow, serve customers better, launch faster, reduce cost-to-serve and strengthen resilience,” says Moroney. “By consistently delivering those outcomes, we sustain the relationship.”

Ultimately, we could be looking at a very different kind of financial institution over the next three-to-five years with the distinction between banks bolting on AI and those using it to drive a different technology approach becoming increasingly important. Adding a copilot to an existing workflow is relatively straightforward, after all. Embedding intelligence throughout an organisation – while ensuring decisions remain governed, explainable and auditable – is a much larger undertaking.

AI is already fundamentally changing how customers interact with banks and how employees execute processes, but these intelligent experiences still need reliable systems underneath.

That is the new architecture that Temenos is building and the one it’s confident will close the Banking Expectation Gap.