by Liam Leahy, CEO, UST FinX
Regional, community, and credit union banks have long been the backbone of local economies. They know their customers, understand local businesses, and provide the funding that helps farmers, bakers, shop owners, and other SMEs grow and thrive.
Today, however, they are being squeezed from both sides. Tier 1 banks can invest billions in technology, while fintech challengers launch new products and services at speed. The battle is increasingly for the next generation of customers, who expect instant gratification, personalized experiences, and digital-first banking. They want to open accounts in minutes, access services through intuitive mobile apps, receive tailored financial advice, and interact with their bank whenever and wherever they choose.
Many mid-tier banks struggle to meet these expectations because they remain constrained by technology built in the pre-internet era. As a result, younger customers are taking their deposits elsewhere, attracted by financial institutions that offer greater convenience and seamless digital experiences.
This creates a dangerous cycle. Fewer deposits, mean less funding for local businesses and less support for the communities these institutions were built to serve.
Banking leaders understand the need to modernize and offer the products and digital experiences customers want, but most do not have large technology teams of the Tier 1banks and have little desire to become fintech companies themselves. They need a way to modernize without the cost, complexity, and risk of rebuilding their bank from scratch.
Mid-tier banks are stuck with legacy technology
Most banks spend the majority of their technology budgets simply keeping the lights on. Industry estimates suggest that between 60 to 80 % of IT spending goes toward keeping legacy environments operational rather than driving innovation.
The consequences are significant.
Customer and product data are in siloes, spread across multiple systems. Launching new products can take months. Business insights are difficult to generate. Customer service teams lack a complete view of customer relationships. Every change requires complex integration work.
I recently spoke with a senior executive at a large regional bank who described the challenge. Data was fragmented across multiple platforms, making it difficult to answer basic business questions such as how many customers had adopted a new product or what products a customer held when they contacted the service center.
This is not just a technology problem. It’s a customer experience problem and, ultimately, a growth problem.
Why rip-and-replace isn’t the answer
Many banking leaders recognize the need to modernize, but the traditional alternative is often no more attractive than the status quo.
Rip-and-replace modernization programs can take years to complete, need significant capital investment, and introduce operational risks. They often depend on scarce specialist skills and can divert focus away from serving customers and growing the business.
While some institutions have successfully completed full core replacements, the reality is that many mid-tier banks cannot justify the cost, complexity, or risk of betting the institution on a multi-year transformation program.
Composable Banking: a smarter path to modernization
The answer is not choosing between maintaining legacy systems and replacing everything.
The answer is composable banking.
Rather than ripping out existing platforms, banks can progressively modernize by introducing composable capabilities that work alongside existing systems. Banks can launch new products in weeks rather than years. Innovation can take place incrementally and with less risk.
Just as importantly, composable banking gives financial institutions the flexibility to adopt new technologies, including AI, without vendor lock-ins or creating another generation of technical debt.
Why Standards Matter
Composability delivers its full value only when it is built on a foundation of industry standards.
Without a common framework, a multi-vendor architecture can quickly become another collection of proprietary integrations and dependencies. Standards such as BIAN provide a consistent way to define and connect business capabilities, ensuring that new technologies fit seamlessly within the broader architecture.
By separating business capabilities from individual technology providers, standards give banks control over their target architecture. This enables institutions to modernize one capability at a time, integrate the technologies that best meet their needs, and preserve existing systems where they continue to deliver value. The result is a more adaptable, future-ready technology landscape that can evolve with changing customer and market demands.
For community and regional banks, the stakes extend beyond technology. Modernization is about protecting deposits, supporting local businesses, strengthening communities, and ensuring these institutions continue to play the vital role they have always played in the economies they serve.