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A smarter approach to modernisation in Financial Services

What

works, what doesn’t and how to turn tech modernisation into business transformation

Modernisation isn't about replacing old systems with new ones. It's about rethinking how we operate, how we serve our customers, and how we prepare for the future. The journey can be challenging. But it offers incredible opportunities for growth, innovation, and transformation.

In this guide, we explore the strategies that help organisations modernise smarter, faster, and more cost-effectively. Drawing from Version 1’s experience of real-world customer projects, we look at what works, what doesn’t and how to learn from the hard-won lessons of others.

By considering our ‘nine steps to smarter modernisation’, you can de-risk change and deliver tangible business outcomes today—positioning your organisation for sustained success in tomorrow’s evolving digital landscape.

Let’s get started.

Why modernisation matters

As applications get older, they often become misaligned with business need.

IT leaders are perfectly aware of the limitations of their legacy technology. So why aren’t more doing something about it?

Skills shortages, budget and resource constraints, keeping the business operational, and the very real risks of disruption are all reasons for inertia. Anecdotally, however, the biggest barrier we see is one of prioritisation. New projects are more likely to be prioritised over modernising old because the former is assumed to deliver more business value than the latter. And that’s not always true.

As applications get older, they often become misaligned with business need. It may be a gradual process, but it’s happening…all the time. It’s silent and invisible—this lack of alignment only becoming apparent well after the app is past breaking point. Then the costs really start ramping up.

20–30% _ typically increase in performance efficiency with modern technology and infrastructure.

The “why?” of modernisation

IT is seen as a strategic enabler—but it remains subject to defined (and often constrained) budgets. Growing technical debt from legacy applications means that more of that budget is being consumed just to ‘keep the lights on’. And that prevents organisations from investing in more of those new projects that will drive the business forward. In short, there’s a huge opportunity cost associated with continuing to spend money and allocating team resources on activities that don’t create value.

The benefits of modernisation are substantial. Gartner says that leaders who actively manage and reduce technical debt will achieve at least 50% faster service delivery times to the business1.

McKinsey estimates that companies investing in modern technology and infrastructure typically see a 20–30% increase in performance efficiency 2 This isn’t just an upgrade, rather a fundamental shift in approach—realigning applications to business need to remove friction and drive efficiency.

In public sector organisations, for example, the objective is making citizen services more straight forward and accessible, accelerating the pace of change and surfacing insights from data to do it. Businesses of all sectors strive to increase operational efficiency, mitigate risk and leverage the potential of artificial intelligence.

AI can cut operational costs by up to 30%.

Modernisation is essential to achieving these goals.

Of course, modernisation is a daunting task. It requires a careful balancing act between maintaining existing operations and transforming them. It’s not as simple as flipping a switch and becoming digital overnight—it’s about thoughtfully rethinking how the organisation operates at every level. And it’s not just about the tech. In fact, with culture and process in the mix too, the technology is often the easy bit.

Change brings challenges, but maintaining the status quo has hidden costs. As above, existing systems and applications become less aligned to business needs. Supportability issues, maintenance costs and technical debt grow. The older the system, the bigger the risk from cyberattack. The existing environment may not be broken, but it’s not always fit for purpose and may not deliver the agility and innovation needed today and tomorrow.

If standing still isn’t an option, how do we move forward? Let’s find out.

1 How to Assess Infrastructure Technical Debt to Prioritize Legacy Modernization Investments, Gartner

2 Unlocking Success in Digital Transformations. McKinsey & Co

Challenges in modernisation

Modernisation can seem straightforward—out with the old, in with the new. Of course, it’s not that simple, and it’s not a guaranteed ticket to success. Across industries, from the public sector to financial services, modernisation efforts are riddled with pitfalls and challenges that often leave organisations wondering where it all went wrong.

Lack of business alignment

Too often, modernisation is considered a technical exercise rather than an initiative aligned to solving business needs. As such, many projects deliver limited value and the lack of ‘transformational change’ frustrates business users. If this has been the organisation’s experience, it’s hardly surprising budget holders will be resistant to assigning more budget to future projects.

The culture clash

McKinsey’s research shows that organisations failing to address cultural resistance to change experience up to a 50% failure rate in their modernisation initiatives. Modernisation is about more than swapping out old tech for new—it’s a shift in mindset and operations. Consider the evolution in methodologies: waterfall is out and agile is in. However, agile can be a hard sell— especially where there’s reluctance to fully embrace ‘new’ practices. Even in more progressive organisations, the speed of change can create friction between departments. Product teams may champion agility, while their technical counterparts may cringe at the term— assuming it means rushed implementations that compromise security and compliance.

Up to 50% _ failure rate in their modernisation initiatives.

The inertia of legacy systems

Many organisations, especially long-established like traditional banks or government departments, are hindered by legacy systems. These aren’t just outdated technologies—they represent outdated ways of thinking and operating. Transitioning to modern, agile, and digital-first approaches requires a complete overhaul of how work processes. This transformation is challenging, particularly when fear of change and a lack of clarity on the path forward can create substantial resistance.

Hidden costs of lost knowledge

Current systems are often quite poorly understood, there’s a lack of documentation and, in many cases, (particularly in core banking systems) the software engineers who developed and maintained these systems have left the industry. All of which leads to additional complexity and cost, and missed or misinterpreted functionality that has to be remediated.

The capacity to modernise

Don’t underestimate the need for new skills. Modernisation requires more than just new tools and technologies—it demands new skills and ways of thinking. You need people who understand modern development practices, like DevOps, microservices, and containerisation. The catch, however, is that finding and retaining this talent can be a major challenge. Companies have learned that investing in continuous training and development is crucial for keeping their teams up to date with the latest trends and technologies . But it’s not just about the right people, the right processes—be they business or change management—are needed, too. Without investing time here, even the best-laid technology modernisation plans can fall apart.

Learning from the mistakes of others

Learning from your mistakes is invaluable. Learning from others, before you make your own, is even better. We’ve brought our experts together who’ve navigated the complexities of modernisation. They’ve seen what works, what doesn’t and they’re here to share their insights to help inform your own modernisation strategies and implementations.

When standing still is not an option

By Andy Parsons Industry CTO and Financial Services Digital Advisor

FINANCIAL SECTOR FOCUS

Many banks are facing the challenge of modernising their apps and systems while keeping up with regulatory demands and shifting customer expectations. With new competitors emerging and digital transformation becoming a necessity rather than a choice, traditional banks need to rethink their strategies and find ways to innovate without disrupting their core services.

Modernisation isn’t just about upgrading systems or moving to the cloud. It’s a comprehensive change that affects every part of the organisation, from core systems to customer interfaces. IT leaders need to define what modernisation means for their specific context—considering the costs, impacts, and ripple effects across their operations. This includes understanding the potential disruptions and the need to balance speed with stability and security. For example, building a modern loan acquisition journey requires balancing the integration of internal and external data sources at pace, adding in enough friction into the journey to allow for risk/ decisioning, then creating a seamless API-led journey.

First and foremost, it’s important to note that tier one banks are typically a long way along the road of their digital transformation journeys. While there may yet be a few legacy issues to manage, focus has naturally shifted to maximising the benefits of these already modernised environments.

Modernisation isn’t just about upgrading systems or moving to the cloud. It’s a comprehensive change that affects every part of the organisation, from core systems to customer interfaces.

With data being the lifeblood of today’s financial institutions, a solid data strategy is a critical component of any modernisation programme.

This involves optimising processes to either remove or add friction, depending on the context. Removing friction can streamline customer journeys, making them more efficient and userfriendly. While adding friction might be necessary for compliance purposes, such as adhering to regulations like the EU AI Act.

Building on this, there’s huge potential for banks to further accelerate their modernisation efforts by leveraging new technologies. AI-powered automation, for instance, can help organisations achieve more with less manual effort, reducing costs and improving the overall engineering experience. These tools can also speed up testing and documentation, allowing for quicker, more effective rollouts. Automation also offers firms the flexibility to fine-tune their operations by eliminating unnecessary steps or implementing essential compliance checks like Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols. The better the onboarding experience, the more satisfied the customer.

Modernisation is not a silver bullet. It’s not going to solve all your probelsm overnight. In fact, in the short term, it might create new ones.

Of course, levels of digital maturity vary across the sector, and older firms can struggle with legacy systems that don’t easily adapt to new technologies or regulatory requirements. It’s an obvious point perhaps, but an important one. Indeed, legacy tech still forms the backbone of most banking operations. It’s been around for decades and is deeply embedded in the organisation’s core IT environment. Modernising these systems is not a task to be taken lightly. Many financial institutions have learned the hard way that ripping out old systems and replacing them with new ones can cause massive disruptions; data migration issues, integration problems, and unexpected downtime all leading to significant headaches.

The lesson here is clear: take the time to understand your legacy systems, plan your modernisation efforts carefully, and be prepared for the unexpected. Conduct thorough audits to understand the current state of your systems, identify potential risks, and develop a comprehensive migration strategy. This might mean running old and new systems in parallel for a period to ensure a smooth transition. It’s not glamorous, but it’s necessary.

In a sector where even minor disruptions can have huge financial implications, caution is most definitely the better part of valour.

With data being the lifeblood of today’s financial institutions, a solid data strategy is a critical component of any modernisation programme. It’s a priority to access and consolidate data from

across the estate into structured, usable formats— taking advantage of modern data lakes and analytics. Firms that fail to address data management as part of their modernisation efforts will struggle with compliance, customer service, and the ability to innovate.

Modern institutions are increasingly moving towards cloud-native, API-driven architectures, which allow for greater flexibility, scalability, and integration. This approach can enable firms to offer new services more rapidly and to integrate easily with third-party providers. However, this transition needs to be managed carefully, especially for the aforementioned older banks with extensive legacy systems that are not cloudready.

It’s been said before, but it’s worth saying again: modernisation is not a silver bullet. It’s not going to solve all your problems overnight. In fact, in the short term, it might create new ones. It’s also important to note that this is often a journey of multiple steps. Migrating applications to the cloud, for example, is a big step—but it’s nowhere near the final one. And assuming it is risks disillusionment with results from the business and users.

So it’s important to set realistic expectations from the outset—with your board, employees and your tech team. Have a clear and shared understanding of what everyone means when they say ‘modernisation’.

Be honest about the challenges you’re likely to face and the time it will take to see real results. Being honest and getting everyone on the same page will pay dividends in the long run, building trust and buy-in from all stakeholders.

Lastly, there’s a constant tension between the need to innovate quickly and the need to maintain stability and security. IT leaders must navigate this carefully, especially in regulated environments where mistakes can be costly. Agile methodologies and rapid development can drive innovation, but they also need to be balanced with rigorous testing, security checks, and regulatory compliance to avoid unintended consequences.

Transforming for the future

By John Bolger

Global Lead for Application Modernisation and Integration

APP MODERNISATION FOCUS

Modernisation often carries different interpretations. While moving systems to the cloud is a significant step, it doesn’t alone deliver true transformation. Real modernisation involves aligning technology initiatives with business goals, whether by updating or replacing applications to meet evolving needs. This alignment ensures that each technological shift adds tangible business value.

Involving the business from the outset is crucial for success. Collaboration helps align IT decisions with strategic goals, making technology a driver for broader outcomes. A simple lift-and-shift approach, while a practical start, won’t make applications more efficient or scalable long-term.

True modernisation is all about realigning applications to business needs. So, take the time to analyse your applications, understand their dependencies, and figure out how to best optimise them for the cloud. It’s not just about where your applications run…but how they run and what the business can do with them.

We’re also seeing a move away from managing multiple isolated applications, with companies now focusing on creating reusable, composable capabilities that act like building blocks for IT solutions. This approach emphasises adaptable, modular architectures and a more productfocused mindset. It’s about being agile, reducing duplication of effort and enabling reusable capabilities to be consumed quickly and easily. This way, you’ll keep initiatives aligned with evolving business needs—moving away from one-time projects towards continuous transformation.

Modernisation can’t just be a lift-and-shift exercise. It’s a great starting point but stop here and you’ll only achieve limited business value.

Modernisation is often seen to align applications with today’s needs or technology. However, with the rise of Generative AI, customer expectations are evolving at an extraordinary pace and this shift requires a focus not only on current

Modernisation made real

It may not always be straightforward, but when modernisation initiatives are tied to business goals, the impacts can be significant.

Income Protection (IP) claim management application modernisation for Irish

Life

Irish Life needed to address inefficiencies and system constraints in their claims management process, which were impacting business performance and customer service. The aging claims management application required a complete overhaul to enhance functionality and improve workflow automation. Collaborating with Irish Life, Version 1 developed a SaaS-based claims management solution using a new event-driven architectural approach to integration. This modernisation streamlined claims processes and improved overall operational efficiency, allowing skilled claims assessors to focus on the most critical cases.

Outcomes:

Established a modern and strategic integration architecture and patterns

Achieved measurable efficiencies and earnings growth through process automation and optimisation

Successful solution adoption through best-in-class change management

Portfolio modernisation

through app

modernisation for National Highways

National Highways aimed to modernise their application portfolio to support critical business services and ensure the safe management of England’s highways. Version 1 partnered with them to migrate the legacy systems to a secure, scalable, and cloud-based environment. After a successful migration, the focus shifted to enabling digital transformation for key systems using cloud-native solutions, including bespoke .NET development and low-code Power Platform approaches.

Outcomes:

82% _ faster incident updates and closures

50% _ faster incident creation

150% _ faster reporting

What’s in the toolkit?

Modernisation is all about delivering more business value. It requires a multi-stage approach and takes advantage of:

AI and automation

AI and automation can be transformative; eliminating manual, repetitive tasks that drain resources and slow progress. By integrating AI and automation, you can streamline operations, reduce errors, and free up your team to focus on driving the business forward. AI can enhance efficiency and customer interactions through intelligent chatbots , virtual assistants and now agents, providing instant, personalised responses. Applying AI and automation to software developments and testing can significantly reduce deployment time. Indeed, McKinsey found that leveraging automation and AI can cut operational costs by up to 30%.

Cloud computing

We’ve been talking about the cloud for years, but now migrating isn’t enough. If organisations treat cloud like an extension of their old data centre (and many do), they’re likely to miss out. Modern cloud strategies are about tapping into true flexibility and scalability. With cloud-native applications and managed services, you can focus on what really matters—innovating and growing your business—while cloud does the heavy lifting. Infrastructure costs are reduced, scalability is enhanced and, by truly optimising cloud, you’ll enjoy lower operational costs (because everything’s easier to manage).

McKinsey reports that companies using cloudnative applications enjoy a 50% reduction in time to market for new products, and a 20% reduction in IT costs 4 .

Low code frameworks

With the rise of low-code and no-code development platforms, creating new apps and tools has never been easier. Gartner estimates that by the end of 2024, low-code application platforms will account for over 65% of all application development activity3. Your team, whether seasoned developers or business users, can quickly build and deploy applications without complex coding. This doesn’t just speed up development—it unleashes creativity, solves problems and helps you respond to market changes fast. Suddenly, that IT backlog becomes a thing of the past.

Data modernisation

A major trend and an undoubted catalyst for change. By modernising your data infrastructure with cloud-based platforms you’re not just efficiently storing information— you’re able to transform it into actionable insights by taking advantage of AI and machine learning, These platforms provide a single source of truth, upon which to deliver real-time analytics that help you make smarter decisions, spot trends before they become trends, and personalise customer and citizen experiences like never before. They also offer better data governance, security, and accessibility, all essential for meeting the rigorous compliance requirements now facing both public and private sector organisations.

Nine steps to smarter projects

To ensure modernisation efforts are successful and deliver meaningful value, consider these key recommendations:

01

Align to business needs. Obvious but not always acted on, and not just the most pressing today. As much as possible, aim to anticipate the future direction of the organisation, the industry and the evolution of technology to futureproof your initiatives.

02

Start with clear objectives. Define your goals from the outset. Whether it’s improving efficiency, reducing costs, or enhancing user experience, having clear goals will guide your decisions and keep the project focused.

Prioritise people and culture. Modernisation is as much about people as it is about technology. Invest in training and change management to ensure everyone understands the benefits and is equipped to use new systems effectively. Foster a culture that embraces change and encourages collaboration across all levels of the organisation.

Embrace incremental changes. Avoid the temptation to overhaul everything at once. Start with smaller, manageable projects that allow you to test, learn, and adapt. This approach reduces risk and helps build confidence and support for larger initiatives.

05

Focus on user-centric design. Keep the end user in mind at every stage of the modernisation process. Whether it’s an employee using a new tool or a customer interacting with a new service, their experience should drive design and implementation decisions.

06

Balance ambition with realism. Set realistic timelines and budgets based on a thorough understanding of the existing systems and the challenges involved. Be honest about what can be achieved and don’t overpromise. Ensure there is room for flexibility to adapt to unexpected changes or challenges.

07

Ensure strong governance and oversight. Establish clear governance structures to oversee the modernisation process. Regularly review progress against objectives, budgets, and timelines to ensure the project stays on track. Effective governance also helps in making timely decisions to resolve any issues that arise.

Leverage best practices and lessons learned. Don’t reinvent the wheel. Learn from both your own experiences and those of others. Review case studies, engage with industry experts, and adapt proven strategies to fit your organisation’s unique context.

Speed up with modernisation accelerators. Tools like Version 1’s cloud modernisation accelerators can significantly reduce the time and effort required for modernisation projects. These accelerators provide standardised blueprints and best practices that speed up development, lower the risk of errors and cut costs.

Accelerating change with Version 1

Version 1 is a trusted leader in application modernisation and integration, helping organisations navigate the complexities of digital transformation. With over 28 years of experience, we prioritise understanding our clients' unique challenges and aligning technology investments with their strategic goals. And we continually assess and develop our approaches and technologies to learn from, and accelerate, customer success through:

Business-led modernisation

Our approach starts with a deep understanding of your business needs, ensuring every modernisation effort aligns with strategic objectives and delivers tangible outcomes.

Proven methodology

Our structured process supports organisations end-to-end—from business assessment to delivery to continuous improvement.

Cutting-edge technology

We leverage advanced technologies— including AI, cloud-native solutions, and automation—to drive efficiency and innovation, enabling organisations to stay ahead in a competitive landscape.

Unique modernisation accelerators

Our cloud modernisation accelerators significantly reduce time to value, offer a robust foundation for digital transformation, and de-risk the process.

Trusted partnerships

As Microsoft’s Global Partner of the Year for Modernising Applications in 2023, we have a proven track record of delivering high-impact modernisation projects across multiple industries.

Extensive expertise

With a team of over 1,500 skilled developers and over 1,000 certifications, we offer a breadth and depth of capabilities across multiple technology stacks, ensuring we can meet any modernisation challenge.

We know that modernisation’s not just a technical endeavour. It’s a strategic business initiative. That's why we focus on building strong partnerships with our clients, working closely with them to foster a culture of continuous improvement and innovation. We’re not just a service provider, we’re here to help you transform your business—in whatever way we can.