As much as I champion the power of AI, I can’t shake the feeling that we’re overlooking something fundamental amid all the excitement: the urgent need to modernize legacy systems in banking.

Core banking systems—many of which were built decades ago—simply weren’t designed to support the demands of today’s digital economy. While the industry focuses on cloud infrastructure, large language models, and Super Apps, too many financial institutions are still operating on outdated technology. These systems may work well enough to avoid collapse, but they actively prevent banks from innovating quickly, scaling efficiently, and delivering the kinds of digital experiences today’s customers expect.

The reality is this: no bank wants to be the first to overhaul its core. Yet, everyone recognizes the need for change. The term “digital transformation” is often used, but what’s really happening in many institutions is surface-level investment—cosmetic upgrades that fail to address structural issues. Meanwhile, digital-first challengers and fintechs are accelerating ahead.

This reluctance to act creates a situation where outdated systems are dressed up to appear modern, but the underlying limitations remain. In a moment when attention is fixed on the next AI breakthrough, perhaps the most disruptive move a financial institution can make is to return to the fundamentals—rebuilding how money moves, how systems interact, and how banks grow in a scalable, future-ready way.

The Case for Core Modernization in Latin America

In Latin America, the pressure to modernize core banking infrastructure is even more urgent.

Latin America has seen exponential growth in digital banking adoption, with over 300 million people now using digital financial services, according to the Inter-American Development Bank. In Brazil, over 70 percent of consumers use digital banking, and similar trends are emerging in Mexico, Colombia and Argentina. This shift highlights the urgency for banks to adopt more flexible and scalable core banking solutions to meet the evolving needs of consumers.

In addition, traditional financial institutions across the region are facing growing competition with the rapid rise of fintechs and neobanks delivering faster, simpler digital experiences. To stay competitive, banks must go beyond surface-level transformation and embrace truly flexible, API-ready core systems.

Composable banking—a modular approach that enables banks to integrate different services and third-party providers—offers a way to modernize core banking systems without a complete overhaul. This approach allows banks to launch new products faster, improve operational efficiency and enhance customer experiences.

If banks want to remain relevant in this new landscape, the time to act is now. A modernized core isn’t just a technology upgrade—it’s the foundation for future growth.

Core Banking Modernization in Latin America

A Strategic Mindset Shift Is Essential

Many banks are beginning to see composable banking as a cost-effective strategy to compete with digital-native providers. These institutions are becoming more familiar with APIs (Application Programming Interfaces) and microservices that enable the integration of different services into a single, unified platform.

To successfully implement composable banking, Latin American banks must adopt a new strategic mindset. This requires shifting from legacy operating models to more agile, technology-driven approaches. Bank executives must build a compelling business case for modernization, demonstrating how new technologies can drive revenue, reduce costs and enhance customer experiences.

A Phased Approach to Minimize Risk

One effective way for banks to embrace composable banking is by experimenting with a single digital service or product before committing to a full transformation. For example, a bank might start with modernizing payments processing or launching a digital-only product, allowing for real-world testing and evaluation.

IDC projects that 40 percent of global banks will adopt a sidecar core banking strategy by 2026. In this model, banks run a modern core system in parallel with their existing infrastructure, migrating services and customers gradually. This approach has already been adopted by leading Latin American banks, proving its effectiveness in minimizing operational risk, reducing downtime, and enabling faster time-to-market for new digital products—all without disrupting day-to-day operations or requiring a full-scale system replacement from the outset.

A Future-Ready Banking Model

Latin America’s banking sector is undergoing a fundamental shift toward digital-first financial services. Traditional banks that fail to modernize risk losing market share to fintech challengers and digital-native institutions. By embracing composable banking, financial institutions can future-proof their operations, remain competitive and deliver innovative services tailored to the needs of Latin American consumers.

For Latin American banks, the time to act is now. Those that embrace composable banking will position themselves as leaders in the region’s financial future.

Contact us to learn how your FI can prepare for LatAm’s digital banking future.