Banks must modernise core systems, says Temenos report

Temenos has published a report with Bain & Company on technology trends in banking, arguing that banks are entering a period in which technology choices will shape their competitiveness.

Covering retail, SME, corporate, wealth and payments, the report says lenders are shifting their focus from digital front ends to the systems and data structures underneath them. It points to increased spending on cloud core modernisation, data architecture and artificial intelligence, while warning that many transformation programmes are slowing as banks contend with fragmented legacy estates.

One of the main findings is that banks are moving from building digital channels to generating returns from them. Many institutions have already spent years improving customer-facing apps and services, but now need to overhaul core systems to support greater automation, sharper product targeting and faster service delivery.

Temenos and Bain identify five themes they expect to shape banking technology priorities over the coming years: responsible AI built on trusted core systems; wider use of cloud and software-as-a-service models; AI agents in corporate banking; the growing relevance of stablecoins in selected banking and payments flows; and greater personalisation in retail and SME banking.

Core systems

The report argues that AI adoption in banking depends on stronger governance over data and system access. Some institutions are exploring approaches such as the Model Context Protocol, which allows AI tools to retrieve data from core systems and external services without copying information into models or hard-coding business logic. The aim is to reduce data-handling risk and support compliance as AI-related rules continue to evolve.

Cloud migration remains another central theme. Banks are increasing their use of cloud-native architectures and SaaS platforms to reduce reliance on older systems and improve scalability. But data remains difficult to manage, with more than a fifth (21%) duplicated. That is prompting interest in data mesh structures designed to organise information more effectively and make it easier to use in real time.

Corporate banking

In corporate and commercial banking, AI agents are starting to take on tasks that have long been handled through manual and bespoke processes, including deal structuring, compliance checks, and documentation. The report also points to rising demand from treasurers for real-time visibility into liquidity and payments, pushing banks to upgrade API-driven channels and the infrastructure behind them.

Stablecoins are also becoming more relevant to banks, particularly in cross-border transactions, liquidity management and some wholesale activities. The report stops short of suggesting they will displace existing payment systems, but says they are moving beyond niche crypto applications into more practical banking use cases. That creates opportunities for institutions able to integrate them, while adding operational complexity for those managing risk, compliance and settlement processes.

In consumer and small business banking, hyper-personalisation is gaining ground as banks use AI and behavioural data to tailor offers and interactions more closely. The report notes that banks have an average of 2.59 products per customer, which it presents as evidence of room to deepen customer relationships through better targeting and timing.

William Moroney, Chief Revenue Officer at Temenos, said the findings show how technology decisions are becoming more closely tied to commercial performance.

"Technology has become central to how banks earn trust, compete, and grow. Those treating technology as a strategic asset are pulling ahead, while others are finding it increasingly difficult to keep pace. This report highlights where value is emerging and outlines the technology decisions shaping the future of banking," Moroney said.

Bain said its work with banks points to a widening gap between institutions that are modernising core technology and those that are not. "Banks are entering a decisive period where technology choices will determine competitiveness for years to come. Bain's work across the sector shows that the winners will be those that modernise the core, adopt cloud-native architecture, and build governed data and security foundations that allow AI to scale safely," said Joseph Edwin, Partner at Bain & Company.

The report adds to a broader debate across the banking sector over whether years of investment in digital services have gone far enough without equal progress in the underlying systems that process transactions, hold customer records and connect business lines. Its central message is that banks now face pressure to match digital customer experiences with modern core architecture, cleaner data and tighter controls over how AI is deployed.