Among Swiss and Liechtenstein banks, the appetite for replacing core banking systems remains limited, reflecting a view that such costly, complex, and risky projects offer little immediate gain.

According to a new study by the Institut für Finanzdienstleistungen Zug IFZ of the Lucerne School of Business, 65% of financial institutions in Switzerland and Liechtenstein expect to keep their current core banking system in ten years, while another 20% foresee a potential change in seven to ten years. Only 5% in each case see a shift as likely within three, three to five, or five to seven years.

The IFZ study, based on a survey of 63 banks conducted in May and June 2026 as well as in-depth expert interviews with industry stakeholders, highlights reasons for limited interest in switching, noting that 95% of the banks polled identified stability and reliability of their current systems as their key strengths.

Yet 64% criticized usability and user experience, and 61% noted slow innovation, naming these as the leading weaknesses of their core banking systems. Flexibility, mentioned by 51% of respondents, and costs, cited by 47%, are also seen as crucial.

These drawbacks reflect the flip side of current systems’ strengths, which, while stable in operation, fall short in user-friendliness and agility.

Modernization over replacement

Despite these limitations, Swiss and Liechtenstein banks favor upgrading their infrastructure rather than replacing systems entirely, and are increasingly relying on specialized external systems for customer-facing and data-driven functions, including mobile banking, customer relationship management (CRM), data analytics and artificial intelligence (AI).

For 72% of respondents, the customer experience layer, including mobile apps, is managed mainly by external software linked to the core banking system. This proportion reaches 66% for data-driven banking and business intelligence, 57% for call centers, and 56% for AI app middleware.

By contrast, core systems retain essential banking operations, such as payment transactions, which remain the clearest domain dominated by the core system. 67% of banks process payments there, while only 11% use external systems.

These trends suggest that the core banking system is evolving into a hub for ledger entries and transaction processing, while functions related to customer experience, data, and AI are being moved outward.

Specialized functions migrate to external providers

Over the next three years, more functions are set to shift to external systems, with the expected share of areas managed mainly by the core banking system projected to drop across nearly all functions.

The largest declines are anticipated in CRM, decreasing from 41% in 2026 to 13% in 2029; risk management and compliance, from 34% to 10%; and onboarding and know-your-customer (KYC), from 26% to 8%.

The core banking system’s share in payment transactions is also projected to fall, declining from 67% in 2026 to 52% in 2029.

This growing reliance on external systems reflects the benefits of provider specialization, the report says.

A costly and complex undertaking

Replacing core banking systems is a demanding and expensive task that goes beyond changing software, requiring a rebuild of the technology behind nearly all banking functions.

The process involves migrating huge volumes of sensitive data, integrating multiple interconnected systems and maintaining uninterrupted services throughout the transition. A mistake can affect millions of customers and result in significant financial and reputational damage.

In the UK, TSB Bank’s online banking and mobile banking applications suffered significant disruption in 2018 following a major upgrade of the bank’s systems.

The bank had to move 5.2 million customer accounts and 1.3 billion records from Lloyds Banking Group’s legacy infrastructure to a new platform, Proteo4UK.

The IT failure blocked customer access from their accounts for several weeks, and TSB Bank was ultimately fined GBP 49 million (US$65 million) for the meltdown.

In Switzerland and Liechtenstein, Finnova is currently the leading core banking provider, used by 63% of the institutions polled by IFZ, with Avaloq following with a 22% share. Together, these two firms control 85% of the market, forming a duopoly. Other providers include Temenos at 3%, Finstar at 2%, and TCS BaNCS at 2%.

Featured image: Edited by Fintech News Switzerland, based on image by thanyakij-12 via Magnific