Before You Ask What a Replacement Costs, Ask What It Is Worth.
Three vendors, three very different quotes to replace an old lending system. Here is why, what the quotes leave out, the ways to buy, and the benchmark for a budget decision.
Three vendors have quoted to replace your loan management system.
The highest quote is more than double the lowest. All three vendors are confident. All three had the same two-page brief and the same two weeks.
Your finance head asks which number is right. Your technology head says it depends on what is inside the system. Nobody in the room can say what is inside the system.
The paradox: You cannot approve a budget without a reliable number. Nobody can give you a reliable number without doing work that needs a budget.
What We Found
We looked at two things: what the public record says about the cost of system replacements in financial services, and how such replacements are usually bought.
The largest costs are not in any quote. When TSB Bank’s migration failed in 2018, the bank paid £32.7 million in redress to customers and was fined £48.65 million. Even a replacement that goes to plan can slow the business: Fino Payments Bank reported “a temporary moderation in business volumes” in the quarter it changed its core banking system.
The hard parts cannot be seen from outside. When one group of more than 40 credit unions replaced a core system, the work meant rebuilding more than 200 screens and more than 500 interfaces to other systems. A screen is visible in a demonstration. An interface that sends a file to another system at two in the morning is not.
Each vendor prices its own assumptions. One assumes the data is clean. One assumes half the reports are no longer used. One adds a large margin because it has been caught before. The three quotes are for three different projects.
The price is fixed before the scope is known. A fixed-price contract signed at this stage does not remove the uncertainty. It decides who argues about it later.
What our review does not show: The first two findings come from named public cases at banks, most of them large. The last two are our own reasoning about how replacements are bought. We found no published figures on quote ranges for mid-size lenders.
The Half of the Business Case Nobody Prices
A quote prices the work. Two other numbers decide whether the work is worth doing, and no vendor’s quote contains either.
The cost of staying. The old system has a running cost, and it also has a risk. The RBI’s direction says regulated entities “shall avoid using outdated and unsupported hardware or software”. In April 2024 the RBI barred Kotak Mahindra Bank from taking new customers online and issuing new credit cards for about ten months, citing its IT risk management. For those months the cost of the old arrangements was measured in customers the bank could not take on.
What a replacement opens up. One industry survey published in September 2026 reported that 52% of financial institutions named legacy technology as an obstacle to modernising real-time payments (the survey did not state its sample size). An RBI survey of regulated entities found that 20.8% were using AI systems, while 67% said they were interested in exploring AI use cases. Plans like these wait on systems that can be changed.
The gap we see: a replacement budget is usually judged as a cost and nothing else. Judged that way it will always lose to “next year”. Set beside the cost of staying and the plans it unblocks, the same budget is a different decision. The opportunity for a lender is to make that decision on all three numbers.
This is our reading of the evidence. It is not a measured market figure, and we do not put a rupee value on it here. That figure has to come from your own business.
Four Ways to Buy, Weighed
| Option | When it fits | What it risks |
|---|---|---|
| Take the lowest fixed-price quote on a short brief | The system is small, well documented and standard | The most optimistic guess wins. Every missed rule becomes a change request |
| Pay for time and materials | You trust the supplier and can manage the work closely | No ceiling on the cost, and no number for the board |
| Wait another year | A retirement or a merger will settle the question soon | The cost of staying keeps running, and the quotes do not get better |
| Pay for a small assessment first, then price each stage | The system is old, customised and poorly documented | You pay before you know whether you will go ahead. The number may be higher than the lowest quote |
Our recommendation: for an old, customised system, assess first and price afterwards. A firm that would never buy a company without due diligence should not buy a system replacement on a two-page brief. The assessment is useful whichever supplier does the work afterwards, because every supplier then quotes for the same written scope.
Where You Are Now, and Where You Should Be
Before a budget goes to the board, we would set a benchmark for the decision itself: a few measures of how well founded the number is.
| Measure | Typical starting point | Where it should be | How it is checked |
|---|---|---|---|
| What the quotes are based on | A two-page brief and a demonstration | A written specification taken from the system | Every supplier is given the same document |
| Whether the quotes can be compared | Three quotes for three different projects | Every quote is for the same scope | The scope is set beside each quote |
| Where the unknowns are | They surface later, as change requests | Listed in a risk register before any price is set | The register is reviewed before signing |
| The cost of staying | Not written down | Set beside the cost of replacing, in one document | The cost comparison |
| The size of one commitment | The whole project | One stage, with the freedom to pause after any accepted module | The staged plan and quote |
| What the business case covers | The cost of the work | The cost of staying, the cost of replacing, and what replacing opens up | The board paper |
The starting points above are what we expect to find. In an engagement they are replaced by your own position, taken in the first review. The targets are what we would work towards with you. They are not results we have already achieved for a lender.
How We Work With You
- We listen: a free Reliability Review. A first conversation about the system, the quotes on the table, and the plans that are waiting on it. You leave with a short written note of what we found.
- We research. We research your sector, the regulator’s position and what the public record says about firms in your situation. This article is an example of that work.
- We read the system and propose: the Legacy System Specification Assessment. It produces a written specification of what the system does, a risk register, a cost comparison between keeping and replacing the system, and a staged plan with a fixed quote. AI does a first pass, our senior engineers review it and trace it to the code, and your own experts confirm it. Code access is read-only and logged, never used for training, and deleted within 30 days of the evaluation ending unless we engage. You get the options and our recommendation.
- If you approve, we build. We replace a system one module at a time while the old one keeps running. We never do a single cutover. The work is billed by milestone, each milestone tied to a module you accept, and you can pause after any accepted module.
- We review against the benchmark. Before work starts we set the benchmark. After each module we show you where each measure stands, and the filled-in benchmark is yours at the end.
The Review is free. Every paid step is fixed price, agreed at scoping. Stop after any step. The findings are yours. The assessment fee is credited in full against the first build stage if it starts within 90 days of the report.
What you need to bring: a budget for the assessment, approved separately from the replacement; read-only access to the code once the assessment begins; and a few hours from the people who know it.
What changes for the business:
| Role | What they gain |
|---|---|
| CEO | A number that can be defended to the board, and no second approval halfway through. |
| CTO or CIO | A budget based on what is in the system. Nobody has to own a guess. |
| CFO | Comparable quotes, a price for each stage, and each milestone billed against a module the business has accepted. |
| COO | Training and parallel running stay in the plan, because no single date squeezes them out. |
| Risk and compliance | The unknowns are listed in a risk register before the contract is signed. |
The cases in this article, and what IOanyT does about that kind of problem:
| The case | What IOanyT does |
|---|---|
| TSB Bank paid redress and a fine that were in no project budget. | Our assessment lists the risks in a register before any price is set. Each milestone is billed only when you accept the module it covers. |
| Fino Payments Bank saw business volumes dip in the quarter of its change. | Our staged plan prices each stage separately, and you can pause after any accepted module. |
| Kotak Mahindra Bank was restricted for about ten months over IT risk. | Our assessment sets the cost of keeping a system beside the cost of replacing it. Taking a plan to the regulator is the firm’s own job. |
IOanyT is a consultancy with its own engineering team: we study the problem, recommend, and prove it by building only what you approve. The specification is yours to keep, and you can take it to any other supplier.
Sources
In this issue
Fear of a failed system replacement
Research note 1
Lenders Do Not Fear Their Old Systems. They Fear One Weekend.
We reviewed the public record of system replacements in financial services: what lenders fear, what waiting costs in growth, and the benchmark we would set.
Research note 3
"Nothing Will Be Lost" Is a Promise. A Benchmark Is Something You Can Check.
No one can honestly promise a new system does all the old one did. Here is the benchmark we would set before go-live, checked function by function.
Issue study
When Replacing the System Is the Biggest Risk
TSB Bank's 2018 migration from the public record: the decision at stake, a lender's options, what we would advise against, and the benchmark we would set.
More from Banking
Unsupported software and hardware
"Accepted Again" Is Not a Plan. A Shrinking Register Is.
Outages at peak load