By Ray Birch
SOUTH BEND, Ind. — Credit unions increasingly recognize that aging lending platforms are limiting growth, increasing compliance and cybersecurity risks, and making it harder to compete, but many lack the staff and resources needed to modernize before those risks become more costly, according to new research from lending technology provider Carleton.
Carleton's inaugural Platform Migration and Modernization Survey found that 76.5% of lending organizations consider modernizing their lending platforms very or extremely urgent, yet only 8.7% have completed a full migration from legacy systems. Nearly three-quarters of respondents still operate primarily on legacy technology, while just 10.6% have fully cloud-based platforms.
Although 87% of respondents are engaged in some stage of modernization, nearly one-quarter are still only considering migration without a defined timeline. Cost constraints, limited internal resources and concerns over operational disruption remain the biggest obstacles.
For credit unions, the challenge is often less about recognizing the need for change than finding the capacity to make it happen, according to Tim Yalich, Carleton's vice president of business development. Yalich said conversations with credit unions, core providers and fintech companies prompted the survey after it became apparent that modernization struggles were more widespread than expected.
"What really stood out was the tremendous sense of urgency, but very little reaction to it," Yalich said. "Everybody understands they need to modernize their technology stack because they have to connect to new fraud tools, AI capabilities and other cloud-based services, but they're struggling to get there. It's exactly what we're hearing every day from lenders and credit unions."
Pressure To Respond
Yalich said the urgency is being driven by much more than a desire to replace old technology. Financial institutions are under pressure to respond more quickly to fraud trends, connect with cloud-based fintech partners, comply with an increasingly complex regulatory environment and prepare for AI-powered lending tools that require modern API-based integrations. Legacy platforms can often be made to work, he said, but doing so typically requires costly custom programming and limits an institution's ability to quickly adopt new capabilities.
"The feeling across the industry is that these legacy platforms just can't easily connect to what's available today," Yalich said. "Whether it's fraud prevention, AI, or other modern services, lenders believe they need a more modern technology stack to take advantage of those tools and remain competitive."
One of the survey's most revealing findings, Yalich said, is that many institutions have become trapped maintaining outdated systems instead of investing in innovation. One-third of respondents said 80% to 100% of their technology resources are devoted solely to maintenance, while another 40% spend between 60% and 80% maintaining existing systems. Meanwhile, less than 2% of technology resources are being devoted to innovation.
"There's really a people problem," Yalich said. "Everybody is too busy just keeping up with what they have. It's not uncommon to hear someone say, 'The person who wrote most of this code isn't even here anymore.' They're spending way too much time just trying to keep these legacy systems running, and it's pretty obvious why there hasn't been more progress with migration."
He added that the maintenance burden creates a vicious cycle.
"The resources simply aren't available to work on modernization because they're consumed by day-to-day operations,” Yalich explained. “At the same time, regulatory changes, fraud threats and security demands continue to increase, so institutions have to devote even more time to maintaining these older platforms."
Tim Yalich
Limiting Business Growth
The survey also found that legacy systems increasingly are limiting business growth. Compliance risk ranked as the top operational concern, while respondents identified calculation accuracy as the platform capability most in need of modernization. Nearly one-third said implementing a new lending product or regulatory change takes six months or longer, and more than 12% said such changes require more than a year.
Yalich said those delays can prevent credit unions from expanding into new states, adding new loan products or integrating with specialized fintech providers that deliver compliance, fraud prevention or decisioning capabilities.
"A lender may want to move into a new state or add another asset class, but the regulatory complexity is significant," he said. "They need technology partners to help them, but they're on such a legacy platform that they can't easily connect to those modern capabilities."
Reflecting that situation, 82% of respondents said third-party API integrations are critical to future success, while nearly two-thirds identified hands-on migration support as the most valuable resource for completing modernization efforts. Yalich said the findings also show lenders increasingly trust outside technology partners to help guide both migration strategies and ongoing compliance.
"The numbers speak loudly," he said. "Credit unions generally have fewer technical resources available to move these projects forward and rely much more heavily on third-party providers. They understand they need to modernize, not just for efficiency, but to remain compliant, strengthen security, connect to modern fintech capabilities and ultimately compete. The longer they wait, the harder that transition becomes."