From Outdated to Agile: A Mid-Market Strategy for Financial Tech Modernization

Out with the old and in with the new isn't always best—but sometimes it’s necessary. Research shows that 78% of business budgets go to legacy system costs, with 44% spent on maintaining operations. Outdated legacy systems aren’t just expensive; they create a variety of problems. 

But modernization isn't a walk in the park. Unlike large companies and banks with deep pockets and whole teams specialized in legacy updates, mid-sized businesses often have limited resources and must balance modernization with cost, compliance, and business continuity—often leading to the postponement of this decision. 

Although legacy modernization seems inaccessible at first, the cost of inaction is higher, leading to lost opportunities, competitive disadvantage, clients, and sometimes user churn.

What difficulties do mid-market companies encounter when attempting legacy modernization, what tactics do they need to succeed, and how can they overcome common business roadblocks? 

The complexities of modernizing legacy systems

Customer data can be a company’s greatest asset or its biggest vulnerability, but this all depends on how it's managed. Outdated and inadequately secured systems can put sensitive information at risk and cause data breaches.

In 2024, a cyberattack on non-bank mortgage provider LoanDepot exposed 16.9 million names, addresses, Social Security numbers, and account numbers. Hackers got around multi-factor authentication by exploiting a system weakness and an outdated protocol.

Beyond security risks, modernizing legacy systems isn’t cheap. In 2023, businesses spent $2.9 million on upgrades—eating up much of a mid-market business's budget. Moreover, many legacy systems, built five to twenty years ago, weren’t designed for today’s strict regulations. Instead of storing granular, transactional-level data required by laws like Sarbanes–Oxley Act (SOX), they often contain aggregated data. This forces companies to conduct manual audits, adding compliance risks and operational headaches.

Compliance isn't the only issue; ​scalability is another challenge. Older systems struggle to handle growing transaction volumes as they weren’t built to leverage modern multi-core processors or distributed computing. This leads to slow workflows, performance bottlenecks, and limitations in multi-currency or multi-jurisdiction operations. For customers, legacy systems can create frustrating user experiences, pushing customers toward competitors with better interfaces.

Yet, it’s not all doom and gloom; mid-market companies can leverage various strategies to make modernization as smooth as possible. 

Legal considerations and strategic approaches to modernization

Building a roadmap is absolutely vital when considering modernization; if you fail to plan, you plan to fail. Therefore, the first task is to start with legacy infrastructure audits to review hardware, software, networks, and applications for performance gaps, security risks, and outdated technologies.

Even when information is moved from one system to another during a complex modernization process, a company must remain compliant. Mid-tier companies must, therefore, evaluate their current systems against current regulatory frameworks, such as the SOX for financial reporting and the Gramm-Leach-Bliley Act, which safeguards consumer financial privacy.

To overcome this regulatory challenge, businesses must implement a compliance by design approach where statutory requirements are incorporated into the modernization blueprint from the outset. By planning ahead, this allows companies to maintain compliant environments during every transition phase, and document all changes for audit trails.

Once mid-market companies have recognized and addressed any compliance issues, businesses must decide where to focus their legacy updates first. For instance, do they want to improve transaction speed, reduce operational costs, or enhance customer experience? Prioritizing updates that drive the most impact without disrupting essential operations is the key to success in modernization.

Understanding their present infrastructure helps businesses to create an accurate budget and project schedule, plan for all eventualities, and raise their chances for a seamless transition.

Leveraging Cloud Migration

Cloud migration is one often-used modernization tactic, especially for mid-market companies with on-site legacy hardware; there are several ways businesses might use this technology.

Azure, AWS, and Google Cloud are all examples of public cloud service providers that offer a huge selection of cloud options including access to built-in disaster recovery capabilities, AI and analytics services, and maximum scalability. This typically makes them the most cost-efficient choice, and a favorite among smaller businesses on a tighter budget. Alternatively, private clouds provide detailed access controls, dedicated hardware resources, and greater visibility into where data resides.

The right choice depends on each individual's companies’ costs and needs. However, a hybrid cloud solution can be a smart way to get the best of both cloud services. For example, a mid-sized retail business could use AWS for customer-facing applications to handle their 300% seasonal volume spikes while keeping sensitive transaction data on private infrastructure for compliance.

Overcoming common roadblocks 

Upgrading software and infrastructure can be complex, but mid-market companies can take steps to streamline the process.

It's clear that AI has affected every industry, and digital transformation is no exception. During the roadmap phase, AI analytics tools—such as OmniGPT—can identify friction points, helping businesses speed up the planning process. GenAI tools can even autonomously execute routine tasks with speed and accuracy, improving operational efficiency.

Another benefit of AI is how it reduces modernization risks by strengthening security and compliance capabilities during transition periods. Machine learning models can detect anomalies during data migrations, while natural language processing (NLP) tools can scan documents and monitor compliance. Companies can also use NPL-powered chatbots and virtual assistants to enhance customer service. This technology can understand context, resolve complex queries, and escalate issues to human agents when necessary.

However, AI can't do all the heavy lifting, as clear change management initiatives are essential to success. According to McKinsey, 33% of executives reported the main obstacle to change management projects was the lack of organizational buy-in. However, the strategic roadmap should identify change leaders to drive the transformation and offer training for every staff member, including regular retraining to fill in knowledge gaps.

One company that successfully modernized its legacy system was CCI, a securities broker that faced legacy challenges like limited investment visibility and reliance on internal executives for transactions, leading to missed revenue opportunities. However, by upgrading its software, including UX/UI interfaces, and adopting a DevOps approach, CCI digitized client investments—reducing executive time on inquiries by 80-90%, tripling user engagement, and gaining over 30 new investors in the first month.

Modernization isn’t just an IT upgrade—it’s a business decision that drives growth and efficiency. With a clear roadmap and the right tools, mid-market businesses and fintechs can confidently embrace legacy modernization and the future.