A bank in South Africa spent a decade and over a billion rand maintaining a core system built before the smartphone existed. A pan-African lender watched fintech competitors launch new products in weeks while its own development cycles stretched to eighteen months. A digital bank in Kenya discovered that 70 percent of its IT budget disappeared into keeping the old engine running, leaving almost nothing for innovation.
These are not isolated anecdotes. They are the lived reality of most African financial institutions in 2026. And the data now proves what leaders have long suspected: staying on legacy systems is more expensive, more risky, and more competitively damaging than modernising.
The question is no longer whether to modernise. The question is how – without triggering the catastrophic failures that have plagued big-bang replacement projects globally.
The cost of doing nothing
Research commissioned by 10x Banking and analysed by FIS and Oxford Economics quantifies the price of inaction. Legacy systems cost the average financial institution USD 93.6 million annually in direct losses. The breakdown is revealing:
- Operational inefficiencies: USD 11.2 million per year
- Payment and processing friction: USD 5.6 million
- Human error and rework: USD 5.6 million
- Cyberthreats, fraud, and compliance issues: nearly USD 60 million
These losses compound. A five-year delay in modernisation means USD 468 million in cumulative losses – enough to fund a full transformation multiple times over.
Beyond direct losses, legacy systems consume 70 to 78 percent of IT budgets on maintenance alone, according to research from Basikon and TechMagic. That leaves only 20 to 30 percent for innovation, new product development, and competitive initiatives. McKinsey research reveals an even starker reality: operating costs for banks still running outdated cores average 10 times higher than those with next-generation systems.
For African institutions operating on thin margins, this arithmetic is unforgiving. Every dollar spent keeping a COBOL mainframe alive is a dollar not invested in real-time payments, AI-driven fraud detection, or customer acquisition.
Why big-bang replacement fails
Commonwealth Bank of Australia spent over USD 1 billion and five years replacing legacy code. German institutions have written off entire modernisation programmes after years of development. The all-or-nothing approach rarely works.
Three fatal flaws explain the pattern. First, the risk profile is problematic. One failed cutover can take down the entire bank. Second, timeline assumptions are consistently wrong. McKinsey research shows core replacement projects routinely exceed initial estimates by 50 percent or more. Third, the talent gap is real. Finding COBOL experts who can bridge to modern architectures has become increasingly difficult as an entire generation retires.
Among banks with fewer than two years remaining on their core provider contracts, 60 percent report dissatisfaction and 40 percent are actively considering platform switches, according to the American Bankers Association’s 2024 Core Platforms Survey. Yet when renewal arrives, only 20 percent actually make the switch. Fear of catastrophic failure during migration paralyses decision-making.
The industry responds: sidecar strategies become standard
The banking industry has learned from costly failures. IDC projects that 40 percent of global banks will pursue sidecar strategies by 2026, rising to 70 to 80 percent by 2028.
A sidecar core is a separate modern banking system that runs parallel to legacy infrastructure. Unlike full replacement, it handles only specific customer segments, products, or services – typically starting with 1 to 5 percent of the customer base. While the legacy core continues managing bulk operations, the sidecar proves new capabilities with a contained subset of the business.
This approach works for three reasons. First, it de-risks transformation. A failed sidecar affects only a small segment, not the entire bank. Second, it enables rapid learning. Teams build expertise gradually rather than being asked to master everything at once. Third, it delivers visible value early. Instant payments, digital-only brands, or new products launch on modern infrastructure while legacy systems continue undisturbed.
More than half of mid-market banks with assets between USD 10 billion and USD 100 billion now favour progressive transformation to gradually reduce legacy dependence. The sidecar strategy allows traditional banks to replicate the advantages of digital-only banks – cloud-native architecture, API-first design, real-time processing – without abandoning existing infrastructure.
Africa’s new core banking players
Two recent announcements signal that Africa is not waiting for global vendors to solve its modernisation challenges.
10x Banking and HassemPrag announced a strategic partnership in February 2026 to deliver a unified, complete banking solution for African institutions. The combination pairs 10x Banking’s cloud-native core banking platform – proven with Old Mutual’s OM Bank in South Africa and Chase UK – with HassemPrag’s integration capabilities and regional expertise.
According to the announcement, HassemPrag’s CEO noted that the perceived risk of change has held African banks back from much-needed core modernisation. The partnership is designed to change that equation by providing a fast-to-deploy platform proven at scale, offering African banks a de-risked path to transformation with a partner that understands the local market.
10x Banking’s founder and CEO added that the partnership aims to give African banks the ability to modernise at full speed without the risks, high costs, and downtime typically associated with full-scale transformation.
The core banking software market in the Middle East and Africa is expected to reach USD 2.2 billion by 2030. The 10x-HassemPrag proposition targets that opportunity with modular architecture that allows banks to upgrade incrementally, without a risky rip-and-replace of existing cores.
Finpace and Halcyon take a different but complementary approach. In February 2026, Finpace announced Halcyon, an AI solution delivered alongside its core banking platform to help financial institutions run change as a controlled, repeatable capability rather than a backlog-heavy engineering cycle.
Halcyon places an AI layer at the centre of core operations, connecting directly to enterprise data and workflows. According to Finpace, teams can express intent in business terms – adjust onboarding journeys, update pricing, modify collections workflows – and Halcyon translates that intent into governed actions across the core and integrated systems.
Finpace’s Head of AI Solutions explained that across Africa, institutions are innovating quickly, but core change often remains the bottleneck. Halcyon is designed to remove that bottleneck by helping teams execute change faster while building governance into the process, so products and policies can evolve in step with the market.
Halcyon is designed for phased modernisation, supporting coexistence with incumbent cores and third-party processors during transition. For institutions building retail and SME banking, microfinance lending, agent banking, or multi-country rollouts, this AI-driven orchestration model promises to reduce the dependency on code-first delivery for routine change.
The infrastructure layer: South Africa’s data centre boom
Modern cores run on modern infrastructure. Neither cloud-native banking nor AI-driven orchestration is possible without reliable, scalable data centre capacity.
South Africa’s National Treasury has recognised this reality. In his 2026 budget speech, Finance Minister Enoch Godongwana declared that data infrastructure should be considered as critical as electricity, ports, and transport networks.
“The use of data and artificial intelligence has become critical for the future development of economies worldwide,” Godongwana said. “Data infrastructure should be considered as critical as electricity, ports and transport networks.”
The government now plans to explore incentives including lower tax rates for qualifying investments, accelerated depreciation for plant and equipment, VAT relief for imported servers and power gear, and faster grid connections supported by renewable energy wheeling.
The numbers justify the policy shift. South Africa already hosts over 50 operating data centres with a combined investment pipeline worth roughly R50 billion (about USD 2.7 billion) over the next three years, concentrated around Johannesburg and Cape Town. Microsoft has committed an additional R5.4 billion (USD 340 million) to expand its AI-ready capacity. Google has launched its first African cloud region in Johannesburg. Amazon Web Services continues to scale its Cape Town hyperscale region. Teraco is building four new facilities backed by almost USD 900 million. Vantage Data Centres is investing about USD 1 billion in a new campus at Waterfall in Midrand.
More than USD 1 trillion is expected to be invested globally into hyperscale and data-centre capacity by 2027. South Africa is positioning itself to capture a meaningful share of that growth. For African banks planning core modernisation, this build-out means that the infrastructure constraint that has historically forced reliance on offshore hosting is rapidly dissolving.
The five-phase execution model
Successful progressive modernisation follows a disciplined sequence. Based on industry research, a proven model adapted for African institutions includes the following phases.
Phase 1: Initial deployment (months 1 to 6). Deploy the sidecar with a controlled customer segment – new account openings, a specific branch, or a digital-only product line. Focus on stability and learning rather than volume. The goal is proving the platform works in production.
Phase 2: Validation and optimisation (months 6 to 12). Analyse performance data. Identify bottlenecks. Refine processes based on actual usage patterns. IDC research shows this validation period is critical – rushing past it accounts for 60 percent of scaling failures.
Phase 3: Controlled expansion (months 12 to 18). Expand to 10 to 15 percent of the customer base. Target specific segments where modern capabilities deliver clear advantages – small business banking, instant payment users, or mobile-first customers.
Phase 4: Accelerated migration (years 2 to 3). With confidence established, accelerate migration to 30 to 50 percent of customers. According to Oliver Wyman research, banks in this phase typically migrate 10 to 15 percent of customers quarterly.
Phase 5: Majority migration and legacy sunset (years 3 to 5). Migrate 70 to 80 percent of the customer base. The legacy core now handles only edge cases. Plan the controlled retirement of legacy systems, archive historical data according to a tiered strategy, and decommission outdated infrastructure.
The golden rule applies at every transition: do not move to the next phase without defensible evidence from the current one.
What African financial services leaders should do now
The convergence of five trends makes 2026 the year for decisive action on core modernisation.
First, the cost of inaction is now quantifiable and unsustainable. USD 93.6 million per institution per year in avoidable losses. 70 to 78 percent of IT budgets consumed by maintenance. Operating costs 10 times higher than modernised peers.
Second, the risk of big-bang replacement is avoidable. Sidecar strategies have matured, with IDC projecting 70 to 80 percent adoption by 2028. The industry has learned that progressive transformation works.
Third, Africa-specific solutions are now available. The 10x-HassemPrag partnership and Finpace’s Halcyon AI layer offer cloud-native, AI-driven cores designed for African operating conditions – multi-currency, multi-language, agent banking, cross-border flows.
Fourth, the infrastructure gap is closing. South Africa’s data centre boom, backed by government incentives and hyperscale investment, provides the reliable, scalable hosting that cloud-native cores require.
Fifth, the competitive window is closing. Neobanks and fintechs built on modern infrastructure from day one are capturing market share. Traditional institutions that delay modernisation will find it increasingly difficult to catch up.
The question for forward-thinking leaders across African banking is no longer whether to modernise. The question is whether the institution will be among the 40 percent that begin the journey in 2026 – or among the laggards that watch from the sidelines as the industry transforms.
The sidecar is ready. The AI layer is available. The infrastructure is being built. The only missing ingredient is the decision to start
SOURCES:
https://www.10xbanking.com/news/10x-banking-and-hassemprag-to-drive-next-gen-banking-innovation-across-africa
https://fintechnews.africa/46209/fintechafrica/finpace-halcyon-ai-core-banking-africa/ https://techcabal.com/2026/02/25/south-africa-eyes-data-centre-boom/ https://softjourn.com/insights/core-banking-modernization-in-5-steps
https://insights.techcabal.com/african-startups-are-scaling-fast-their-data-infrastructure-is-not/
https://www.10xbanking.com/news/10x-banking-ceo-statement-celebrating-10-years-of-10x-following-strong-2025-momentum