Ageing Applications: A Hidden Cost in Financial Services
Technology leaders across financial services have spent years simplifying their application landscapes – reducing functional overlaps, consolidating vendors, and rationalizing portfolios.
But despite extensive efforts, many continue to face rising maintenance costs.
Our new analysis of 40 leading banks globally has uncovered a hidden, and often underestimated, driver of these mounting costs: application age.
In collaboration with Expand, BCG’s benchmarking arm for financial services, we drew on normalized data to examine the relationship between average application age and maintenance costs—the results are striking.
The Age and Cost Correlation
As the average age of applications increases, maintenance spend rises in tandem.
In fact, when an application’s age doubles, there is an increase from 3% to 7% in maintenance cost intensity – even after normalizing for bank size, IT intensity, and the degree of outsourcing.
But what is meant by ‘age’ in this context? Application age is defined as the time since release into production, or the last major refactoring (a substantial internal overhaul of the application), whichever is more recent. ‘Applications’ are well-defined systems automating business processes, regardless of whether they are vendor solutions, managed services, or internally developed systems with more than one user.
.png)
Rejuvenation Rather Than Simplification
Even lean application landscapes become costly if they are old. The solution is systematic rejuvenation, through refactoring, modernization, or replacement. Cutting complexity alone is not enough to meaningfully impact an upward-sloping cost curve.
This reality is reflected in our findings, which features a major bank that focused heavily on simplifying its application landscape in the past. The same organization is now plotted on the highest section of the cost curve due to its simplified (but ageing) setup.
As a structural cost driver, application age should be managed as a portfolio variable. Taking this approach means maintenance spend is not a fixed baseline, but a dynamic outcome of portfolio age – this requires average application age to be measured, and the oldest, costliest clusters to be identified.
When taking this approach, major refactoring can be treated as an economic reset, shifting then focus away from managing contracts, and toward managing application age.
Implications for Technology Leaders
Institutions that actively rejuvenate their portfolios can structurally bend their maintenance cost curve and successfully contain long-term cost inflation. In contrast, those that do not do this risk compounding cost pressure year after year.
Key takeaways for Technology Leaders:
- Maintenance spend rises sharply in tandem with application age.
- Consolidation of applications is not enough to outrun the costs of ageing.
- Systematic rejuvenation (refactoring, modernization, replacement) is vital.
At BCG Platinion, we help financial services players to strategically rejuvenate their application landscape, pinpointing problem applications and enabling cost curve improvements. GenAI is accelerating legacy modernization, creating a unique window to act now. To continue the conversation, get in touch with our experts!
