The Physical Infrastructure of Banking Is Being Replaced by Software
Banks spent $623 billion on technology in 2024, according to IDC’s Worldwide Financial Services Technology Spending Guide. For the first time, more than half of that spending went to digital infrastructure — cloud computing, APIs, cybersecurity, and data platforms — rather than maintaining physical assets like data centres, branch networks, and ATM fleets. The shift reflects a fundamental change in what banking infrastructure means. The vault, the branch, and the mainframe are giving way to the API, the cloud instance, and the machine learning model.
A McKinsey survey of 200 bank CIOs found that 78% plan to move their primary banking workloads to public cloud within five years. That is up from 35% in 2020. The acceleration is driven by cost pressure, regulatory expectations for operational resilience, and the need to support the 3.6 billion digital banking customers expected by 2028.
Cloud Is Replacing the Data Centre
Traditional banks have operated their own data centres for decades, housing the mainframes and servers that process transactions, store customer data, and run compliance systems. These facilities cost tens of millions of dollars per year to operate and require constant investment in hardware upgrades, cooling systems, and physical security. Cloud migration eliminates most of these costs.
Accenture estimates that banks migrating to public cloud reduce their infrastructure costs by 40 to 60%. HSBC, which announced a major cloud partnership with AWS in 2024, expects to save $300 million annually once migration is complete. Capital One became the first major US bank to shut down all of its data centres in 2020, running entirely on AWS. Its technology operating costs have dropped every year since. Fintech platforms growing at 23% annually were cloud-native from the start and never incurred legacy data centre costs.
APIs Are Replacing Proprietary Networks
Banking used to run on proprietary networks — closed systems that connected a bank’s branches, ATMs, and back offices. These networks were secure but inflexible. Open banking APIs are replacing them with standardised interfaces that allow any authorised application to connect to banking services. The UK’s Open Banking ecosystem now includes more than 370 regulated providers and 7 million active users.
APIs create digital infrastructure that extends banking beyond the bank. When a customer applies for a mortgage through a broker’s website, APIs pull their account data, verify their identity, check their credit, and initiate the application — all without the customer visiting a bank branch or even the bank’s website. This kind of infrastructure enables the 30,000 fintech companies operating worldwide to build products on top of banking rails.
Digital Identity Is Replacing Physical Verification
Opening a bank account used to require visiting a branch with physical identity documents. Digital identity verification has made that process obsolete for most customers. Companies like Onfido, Jumio, and Veriff use AI to verify identity documents and match them to selfies in under 60 seconds. Gartner reports that 85% of new bank accounts in developed markets are now opened through digital channels.
India’s Aadhaar system, which provides digital identity for 1.4 billion people, has enabled account opening in minutes rather than days. Brazil’s digital identity framework supports similar functionality. These national digital identity systems are banking infrastructure in the same way that branch networks were in the 20th century — they are the foundation on which financial services are delivered.
Real-Time Payment Rails Are Replacing Batch Processing
Payment infrastructure is also going digital. Real-time payment systems now operate in more than 70 countries, according to FIS Global. India’s UPI processed more than 12 billion transactions in a single month in 2024. Brazil’s Pix handled 42 billion transactions for the year. The EU’s SEPA Instant system is being expanded to cover all eurozone banks by 2025. These systems process payments in seconds rather than the one to three business days required by traditional batch-processing infrastructure.
Fintech venture funding has supported the development of real-time payment infrastructure globally. The result is a banking system that increasingly runs on software rather than physical assets — digital infrastructure that is cheaper to operate, faster to update, and capable of serving billions of customers without the geographic constraints of branch-based banking.
