The Scaling Imperative

Part I of this report examines the three imperatives shaping financial markets infrastructure. The first is the Scaling Imperative: financial institutions worldwide are confronting a stark reality — legacy infrastructure severely constrains their ability to compete in an increasingly digital marketplace.

Decades of technical debt have created an innovation gap that newer, more agile competitors, digital challengers, and neo-banks exploit.

02·01The high cost of legacy systems

Legacy core banking systems, often built on outdated programming languages, have become significant obstacles to innovation. These systems are characterized by:

• Technical complexity: legacy core banking systems often rely on monolithic architectures and outdated programming languages, creating a growing knowledge gap[1]. This makes upgrades and innovation increasingly challenging to implement.
• Rigid architecture: Due to their monolithic construction, legacy systems require entire system updates to introduce new functionalities or modify processes. Launching new products can take years rather than weeks, preventing banks from responding to emerging consumer needs[2].
• Prohibitive maintenance costs: Legacy systems consume disproportionate resources, with maintenance costs continually rising. This financial drain creates a vicious cycle where capital needed for transformation is instead spent maintaining outdated systems.

02·02The make-or-buy dilemma

Financial institutions face a critical decision when addressing these infrastructure needs:

• Building in-house: Developing proprietary infrastructure requires substantial capital investment with lengthy implementation timelines averaging 18 months. This approach delays market entry and diverts resources from core business functions.
• Buying external solutions: External infrastructure platforms offer cost efficiency with predictable SaaS fees and rapid technical deployment (typically 1–3 months), allowing institutions to start processing payments and launching products almost immediately.

02·03Developments in FMI infrastructure

The decision between building in-house and leveraging external infrastructure is no longer just about cost — it's about competitive survival. While financial institutions debate the "make or buy" dilemma, the broader financial market infrastructure is evolving rapidly. The shift is no longer hypothetical, it is happening now.

Institutions that fail to modernize risk falling behind as new financial rails emerge, powered by cloud computing, AI-driven automation, and API-first platforms. The move toward modular, scalable infrastructure is already reshaping how financial products are structured, issued, and distributed.

The following developments reflect a larger industry-wide transformation aimed at removing inefficiencies, reducing reliance on outdated systems, and unlocking new opportunities for mass-customization and scalability.

• Cloud-based Solutions: Adoption of cloud technologies to modernize legacy systems.
• Artificial Intelligence Integration: Deployment of AI for enhanced risk management and analytics.
• Digital Innovation: Development of digital securities and other innovative financial products.
• Regulatory Modernization: Updates to regulatory frameworks to support evolving market needs.
• Cross-border Payment Systems: Improvements in international payment infrastructures for faster and more secure transactions.
• Cybersecurity Enhancements: Strengthen cybersecurity measures to protect against emerging threats.
• Financial Engineering-as-a-Service (FEaaS): Emergence of platforms offering advanced financial engineering tools and expertise to optimize project financing and risk management[3].

02·04FMI infrastructure growth

The Financial Market Infrastructure (FMI) sector is growing as it increasingly handles tasks that were traditionally managed in-house by banks and asset managers. It includes domains such as:

• Payment Systems and RTGS Networks: FMIs like Swift, Fedwire, and SEPA Instant now facilitate real-time fund transfers, reducing the need for banks to maintain costly in-house settlement systems.
• Central Securities Depositories: CSDs such as Euroclear and DTCC have expanded their roles beyond safekeeping securities to offering services like digital asset custody, compliance reporting, and blockchain integration.
• Securities Settlement Systems: SSSs ensure secure transactional processing through delivery-versus-payment models, streamlining settlement processes that were once handled internally.
• Central Counterparties: CCPs like LCH and CME Clearing manage counterparty risk in trading, mitigating systemic risks and providing robust collateralization frameworks.

02·05Why institutions must pivot to FEaaS

Research indicates that the Scaling Imperative is driving over $278 billion in annual infrastructure modernization as banks and asset managers race to replace legacy systems and remain competitive[4].