The Biggest Risk for Banks Isn't Fintech; It's Legacy Thinking

For the better part of a decade, the narrative in financial services has been one of David vs. Goliath. In one corner, the big, incumbent banks Goliaths of capital, regulation, and customer trust. In the other, the army of nimble fintech Davids armed with sleek apps, AI-driven insights, and a relentless focus on customer experience.

Pundits warned that banks would be "disintermediated" and "unbundled," left holding the boring (and low-margin) utility pipes while start-ups like Chime, Klarna, and Stripe skimmed all the profitable, customer-facing interactions.

But a funny thing happened. The banks didn't disappear.

Fintechs, while successful, discovered that customer acquisition is expensive, regulation is complex, and building lasting trust is hard. Many are now seeking bank charters themselves or partnering with the very incumbents they sought to disrupt.

This has led many in the traditional banking world to breathe a sigh of relief. They believe the fintech "threat" was overblown. They are dangerously wrong.

The biggest risk to banking was never the start-up in a garage. The biggest risk for banks isn't fintech; it's legacy thinking.

Fintech wasn't the threat; it was the symptom. It was a bright, flashing warning sign that banks were failing to meet modern customer expectations. The real threat is the internal, cultural, and technological inertia that allowed those gaps to exist in the first place.

What Is 'Legacy Thinking'?

When most bankers hear "legacy," they think of their 40-year-old COBOL mainframe a critical but brittle piece of core technology. But legacy tech is merely a symptom of legacy thinking.

Legacy thinking is the insidious, pervasive, "this is how we've always done it" mindset. It manifests in several ways:

• A Product-Centric View: The bank is organised into silos: checking, savings, mortgages, wealth management. Each department has its own P&L and is focused on selling its product. A customer doesn't want "a mortgage"; they want "to buy a home." Legacy thinking focuses on selling the former, while modern competitors (like Rocket Mortgage) focus on enabling the latter.

• A Culture of "No": In banking, risk management is paramount. But in a legacy culture, "risk management" becomes a default excuse to kill any new idea. Instead of asking, "How can we do this safely?", the culture asks, "What's the risk?" and uses the answer to shut down innovation.

• Crippling Technical Debt: The old mainframe isn't just slow; it's a fortress. It was designed to keep people out. In the modern API economy, value is created by letting people in securely and easily. Legacy tech makes it nearly impossible to partner, innovate, or create the seamless, real-time experiences customers now demand from all their digital services.

• Branch-Based Processes: Too many banks still design processes that assume a customer will walk into a branch. They then "digitise" that process by, for example, turning a 10-page paper form into a 10-page online PDF. This isn't digitisation; it's digital transposition. A fintech, by contrast, starts with a blank screen and asks, "What is the absolute minimum we need from the customer to get this done in 30 seconds?"

How Legacy Thinking Creates Opportunity for Fintechs

Fintechs didn't succeed by being better banks. They succeeded by being better at one specific thing. They looked at the friction created by legacy thinking and built an entire business around removing it.

• You think: "International money transfers are slow and expensive because of SWIFT and compliance."

A fintech thinks: "This is a transparency and user-experience problem." (And Wise is born.)

• You think: "Getting a small business loan requires a 40-page application and weeks of underwriting."

A fintech thinks: "We can see their real-time sales data from Shopify and approve them in one click." (And Shopify Capital is born.)

• You think: "Opening a checking account requires an in-person ID check and several days to process."

A fintech thinks: "We can verify an ID with a phone camera and onboard a user in three minutes." (And Chime, Monzo, and Starling are born.)

The fintechs are simply a mirror reflecting the bank's own internal shortcomings. They are exploiting the gaps left by a mindset that prioritises internal processes over customer outcomes.

Case Study: Breaking the "Build Trap"

So, what does it look like when a bank decides to actively fight this mindset? It often requires outside help to spot the inertia. A prime example is the work done by us, Love Code Less with a mid-sized European challenger bank.

The bank was paralysed by a classic case of the "IT backlog." Their business teams (lending, onboarding, customer service) had innovative ideas, but the IT department was the bottleneck. The bank suffered from Legacy Thinking Rule #1: "If it’s banking software, it must be custom coded from scratch in-house to be secure."

This mindset resulted in 18-month wait times for simple tools, rampant "Shadow IT" (employees using Excel to manage data because systems were too slow), and a massive disconnect between "The Business" and "IT."

The Intervention:

Love Code Less challenged the bank's legacy thinking by implementing a Low-Code strategy. Our philosophy was simple: The goal is the product, not the code.

• Breaking Silos: We set up "Fusion Teams” squads of developers and business analysts working on the same visual platform. This removed the "translation error" that usually happens when business requirements are handed off to coders.

• The "MVP" Mindset: Instead of spending six months writing specs for a "perfect" system, we helped the bank build a functional prototype in three weeks.

• Governance by Design: To calm the Risk Department, we established a "Centre of Excellence," proving that low-code platforms could represent lower risk because security patches were handled at the platform level, not written manually by tired developers.

  
  

  

The Outcome:

The shift was dramatic. The bank launched a new digital customer onboarding journey in just 8 weeks a project previously scoped for 9 months. By loving code less, the bank learned to love the customer more, proving that speed and security aren't mutually exclusive when you abandon legacy dogma.

The Way Forward: It's a Mindset, not a Tech Upgrade

The case study above highlights that the good news for banks is that they have massive, structural advantages: a huge customer base, deep capital reserves, and regulatory expertise. The challenge isn't a lack of resources; it's a lack of will to change the core.

So, how can banks fight back? Not by launching a "me-too" app or a superficial "innovation lab." They must attack legacy thinking at its root.

1. Stop Selling Products. Start Solving Problems.

   
   

Reorganise teams not around "mortgages" but around "homeownership." Create cross-functional squads from product, tech, compliance, and marketing, and give them a single goal: "Make it easier for someone to buy a home." This customer-centric shift breaks down the silos that kill innovation.

2. Embrace the "API Economy."

Your bank is a fortress. It needs to become a platform. Banks like Goldman Sachs (with its TxB platform) and Citi have realised that the future isn't about owning the customer relationship; it's about enabling it. By offering their core services (payments, lending, compliance) as APIs, they let fintechs build on top of their secure infrastructure turning a potential competitor into a high margin "Banking as a Service" (BaaS) client.

3. Make Compliance an Innovator, not a Blocker.

Your compliance department should be your greatest competitive advantage. They understand the rules better than any startup. Instead of having them at the end of the product cycle to say "no," put them at the beginning to help design how. This "compliance by design" approach builds safer, more resilient products from day one and is infinitely faster than fixing mistakes later.

The battle for the future of finance isn't a tech war. It's a cultural one.

The banks that thrive will be those that stop viewing fintech as the enemy and start seeing "legacy thinking" as the true, internal threat. They will be the ones who finally decide to replace their 1970s-era mindset and then, and only then, will they have the cultural clarity to replace their 1970s-era tech.

The future of banking isn't about being a better bank; it's about building a better way to help customers with their financial lives. And that change starts with how you think.