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JPMorgan Chase allocated $15.3 billion to technology in 2023, with a significant portion directed toward maintaining legacy systems.
This signals a clear challenge: Many institutions rely on core platforms designed decades ago.
Today, priorities have shifted. Banks and fintechs are focusing on speed, flexibility, and integration.
These needs often exceed the capabilities of monolithic systems. Modular architectures offer an alternative.
They enable faster updates, easier third-party connections, and more control over product development.
This article examines the differences between modular and monolithic core banking platforms and explains why this architectural decision plays a central role in how financial institutions compete and grow.
What Is Monolithic Core Banking?
Monolithic core banking systems are traditional, tightly integrated platforms where all banking functions—such as account management, transaction processing, compliance, and reporting—are bundled into a single software package.
These systems are often called "vertical" solutions, meaning they provide a full range of services in a single, rigid stack.
The architecture is centralized, and changes to one part of the system often require updates across the platform. However, maintaining these legacy systems can be costly.
According to a report by Accenture, 59% of banks still struggle with legacy payments, IT systems, and infrastructure, limiting their ability to meet customer demands quickly and affordably.
Legacy systems are often the most considerable portion of an institution’s IT budget, with some banks spending as much as 70% of their IT budgets just to maintain these systems.
Many large, traditional banks still rely on monolithic core banking systems. Examples include legacy systems like Systematics, Hogan, and Bankmaster, which have been used for decades.
These systems are trusted for their stability and compliance but often struggle to keep pace with the demands of modern digital banking.
Characteristics of Monolithic Core Banking
- Centralized Codebase: All components of the core banking system are tightly coupled, meaning that updates or changes require effort and often disrupt the entire system.
- Complex Upgrade Cycles: Updating or upgrading a monolithic system is long and costly. Any change, whether adding a new feature or addressing security vulnerabilities, requires testing and reworking multiple system layers.
- Limited API Exposure: Monolithic systems were designed in an era before APIs were widely adopted, making it difficult to integrate with modern fintech solutions, third-party services, or cloud-based tools.
Pain Points of Monolithic Core Banking
Monolithic core banking systems present several challenges that can hinder innovation and growth:
- Vendor Lock-In: Institutions that use monolithic platforms are often tied to a single vendor for updates, support, and feature enhancements. This limits flexibility and can lead to higher costs over time.
- Slow Innovation: Since monolithic systems are complex to update or modify, introducing new products or features can be slow and resource-intensive. This can delay the bank’s ability to respond to customer needs or capitalize on market opportunities.
- Downtime Risk: Because the system is centrally managed, downtime or system failures often affect all banking functions simultaneously, potentially leading to operational disruptions and customer dissatisfaction.
What Is Modular Core Banking?
Modular core banking systems represent a shift from traditional monolithic architectures, offering financial institutions enhanced flexibility, scalability, and agility.
Built on a plug-and-play model, these systems consist of independent modules, such as payments, KYC, loans, and customer accounts, that can be integrated or updated without affecting the entire system.
This design allows banks to tailor their technology stack to specific needs, facilitating rapid deployment and innovation.
Built for Agility, Scalability, and Fast Product Launches
The modular approach enables financial institutions to implement only the required components, reducing complexity and accelerating time-to-market for new products and services.
This agility is crucial in today's competitive environment, where customer expectations and regulatory requirements continually change.
By adopting modular systems, banks can respond swiftly to market changes and customer demands.
In a modular core banking system, each module is responsible for a specific function, such as:
- KYC (Know Your Customer)
- Payments Processing
- Account Management
- Loan Management
This separation allows for easier maintenance, updates, and integration with third-party services, enhancing the overall efficiency and adaptability of the banking system.
Enables Composable Banking
Modular core banking systems facilitate composable banking, where institutions can assemble a customized suite of services by integrating various modules and third-party applications.
This approach promotes innovation and allows banks to offer personalized experiences to their customers.
Banks can seamlessly incorporate new functionalities by using open APIs and microservices architecture, ensuring they remain competitive and responsive to customer needs.
Industry Adoption and Market Growth
The shift toward modular core banking is gaining momentum across the financial industry.
According to a report by GlobeNewswire, the global core banking software market is projected to grow from $12.51 billion in 2022 to $40.67 billion by 2029 at a compound annual growth rate (CAGR) of 18.3%.
This growth underscores the increasing demand for flexible, scalable, and efficient banking solutions that modular systems provide.
The Case for Monolithic (and Why Some Still Use It)
Despite the growing momentum behind modular architectures, monolithic core banking systems continue to serve a role in the financial services industry.
Their maturity, long-standing regulatory track record, and tightly controlled environments remain advantageous in certain contexts.
Trusted, Time-Tested Infrastructure
Monolithic systems have been in production for decades. Their stability and performance under high-volume conditions have been proven across large, complex institutions.
For banks operating in heavily regulated environments or managing mission-critical infrastructure, the predictability of a monolithic system can outweigh its limitations.
Compliance-Proven Architecture
Many regulatory bodies are deeply familiar with the architecture and workflows of monolithic systems.
This familiarity can simplify audits and compliance checks, especially in jurisdictions where technology innovation is slower to be adopted.
A monolithic system may feel safer for banks to prioritize regulatory alignment over market speed.
Perceived Security and Control
Because monolithic systems are often deployed on-premise or in tightly controlled private cloud environments, they are sometimes seen as more secure.
Monolithic deployment models may be required for institutions where regulatory pressure mandates full infrastructure ownership or limits data residency.
Why Some Still Choose Monolithic in 2025
- Government or state-backed banks that operate under legacy mandates or infrastructure contracts
- Highly regulated markets where cloud infrastructure is not yet approved
- Organizations prioritizing long-term system control over flexibility or speed
The Risks Remain
While monolithic systems offer control and familiarity, they come with trade-offs: slower product development, higher maintenance costs, vendor lock-in, and difficulty scaling across regions or product lines.
Institutions using monolithic systems often struggle to meet the agility demands of today’s digital banking environment.
When to Go Modular vs. Monolithic
Choosing between a modular and monolithic core banking platform depends on an institution’s goals, growth strategy, and regulatory context.
While modular systems are increasingly favored for their speed and flexibility, monolithic platforms still have specific use cases where they are appropriate.
When to Go Modular
A modular core banking system is the right choice for institutions that value speed, scalability, and integration with modern fintech tools.
It supports fast product launches, flexible architecture, and service-level scaling, making it ideal for:
- Fintech startups launching MVPs or testing new financial products
- Neobanks are expanding across multiple markets or customer segments
- Established banks are modernizing gradually without a complete system overhaul
- Platforms embedding financial services through APIs or white-label solutions
Modular systems are especially beneficial for institutions looking to launch quickly, iterate often, and avoid being locked into a single vendor’s roadmap.
When to Go Monolithic
Despite the limitations, a monolithic core banking system may be more appropriate in particular, regulated or constrained environments:
- Government-backed institutions with legacy dependencies or long-term vendor contracts
- Banks in jurisdictions where cloud infrastructure is not permitted or not yet approved by regulators
- Organizations prioritizing regulatory certainty over speed and innovation
- Institutions operating in low-competition markets where time-to-market is less critical
In these cases, a monolithic system's stability, maturity, and compliance history may outweigh the operational benefits of going modular.
What Sets Modular Core Banking Apart in Practice
Modular core banking is not just a trend but a structural response to the demands of modern finance.
As institutions compete on speed, scale, and customer experience, the ability to build, adapt, and integrate quickly is no longer optional.
Modular platforms offer more than flexibility.
They give institutions real control over their architecture, reduce risk by isolating services, and accelerate product delivery without compromising compliance or performance.
In a world where infrastructure decisions directly impact growth, modular design is emerging as the standard, not the alternative.
Monolithic systems will continue to serve their role in specific contexts, especially where regulatory constraints or existing contracts prevent immediate change.
But for institutions building for scale, speed, and adaptability, modular is not simply better—it is essential.
Book a call with Omniwire to see how modular core banking can give you the control, clarity, and infrastructure to launch, grow, and lead in today’s financial ecosystem.
