Three-quarters of banking customers say they’re only moderately happy with their bank – and that’s a bigger problem than it sounds. In a market where people compare banking apps to social platforms, ride-hailing, and instant payments, “good enough” is no longer good enough.

In this post, you’ll learn why the gap between what customers expect and what banks deliver is widening, why payments are one of the biggest pressure points, and why core modernization is becoming harder to postpone. You’ll also see how AI is changing the modernization conversation for large banks, and why retention numbers can be misleading if loyalty is slipping underneath them.

The Real Problem: Retention Is Not the Same as Loyalty

The biggest message from Temenos’ global banking expectations gaps research is simple: banks may be retaining customers, but not necessarily winning their loyalty.

Will Moroney, Chief Revenue Officer at Temenos, described a growing expectation gap between what customers want and what they actually receive from their banks. The surprising part of the research was not just that the gap exists – it was how many people are living in the middle of it.

Three-quarters of respondents said they were only moderately happy with their bank. That may sound acceptable at first glance, but it’s exactly what makes it dangerous. If customers are merely satisfied rather than genuinely loyal, they are far more likely to try another provider for a payment service, a lending product, or even a full banking relationship.

This is what Temenos calls theswitchable middle – customers who are not unhappy enough to complain, but not loyal enough to stay protected. In other words, they are already halfway out the door. Why “moderately happy” is a warning sign Banks often look at retention metrics and assume they’re in a healthy position.

But as Moroney pointed out, retention can hide the fact that customers are quietly spreading their financial lives across multiple providers. That matters because modern banking relationships are no longer all-or-nothing. A customer might keep their salary deposit with one bank, use another app for payments, and borrow from a third provider. If a bank is only “fine,” it risks becoming just one stop in a much larger financial journey. For banks, the key shift is to stop asking only, “Are customers still here?” and start asking, “Are they choosing us first?”

Why Payments Are Where the Pain Shows Up Fastest

If there’s one banking interaction that exposes the expectation gap most clearly, it’s payments. Moroney explained that many banking products are infrequent touchpoints. A mortgage might happen only once or twice in a lifetime. A personal loan may happen a handful of times. But payments happen every day – and often under pressure. That’s part of what makes payments so sensitive. You’re usually paying a bill, moving money, or trying to complete something that feels urgent.

If the process is slow, unclear, or inconvenient, frustration builds quickly. And unlike in the past, customers aren’t comparing banks only with other banks. They’re comparing banking experiences with the speed and simplicity of everyday tech. A smooth payments journey now gets measured against the ease of ordering a car, sending a message, or making a purchase in a social app. That raises the bar for banks enormously.

The new benchmark is outside banking This is one of the most important shifts in the entire interview. Customers no longer judge banking against the industry’s historical standards. They judge it against the best digital experiences in their daily lives. That means banks are not just competing on reliability anymore. They are competing on friction, speed, clarity, and confidence.

For banks, that creates a difficult reality: improving payments is no longer just a product upgrade. It is a customer experience strategy. If payments feel outdated, the entire bank can feel outdated. The takeaway is straightforward – if the most frequent banking interaction feels stressful, customers will start looking elsewhere for relief.

Why Core Banking Modernization Keeps Moving Up the Agenda

A modern digital front end is only as good as the systems behind it. That’s where core banking becomes the bottleneck. Moroney said banks have made enormous progress in digital channels and instant payments, and those advances deserve recognition. But every new customer-facing improvement puts more pressure on older back-office systems.

If the front end is modern but the core is not, the experience eventually breaks down. He pointed to a simple principle: if straight-through processing works in the digital layer, it should also work on the back end. When it doesn’t, that gap creates operational drag, slower service, and more complexity for the bank.

The result is that many institutions have been “bolting on” new capabilities for years without addressing the core directly. That approach can buy time, but it doesn’t solve the underlying problem. Tier 1 and Tier 2 banks , and that matters because those institutions have much longer procurement cycles and more complex systems to untangle.

They need more analysis, more governance, and more internal alignment before they can move. At the same time, the pressure to modernize is rising. AI, digital customer expectations, and the need for more flexible operating models are making it harder for banks to justify delay. In short, the problem is no longer whether modernization is needed. The question is how quickly a large bank can understand its legacy environment well enough to move safely.

How AI Is Changing the Modernization Conversation

AI is not just another reason to modernize. It may be the thing that makes modernization feasible. Moroney argued that AI creates an opportunity that banks did not have a decade ago: the ability to better understand legacy systems before attempting to replace them.

That includes business processes, data sets, and even code. That matters because one of the biggest reasons banks delay core transformation is not just cost – it’s uncertainty. From the bank’s perspective, a modern core project can sound attractive in theory but intimidating in practice. It is a major undertaking with risk, dependencies, and a long timeline. The challenge is often figuring out exactly what has been patched, customized, and layered over decades. AI can help reduce that uncertainty by making legacy systems more legible.

The hidden value of understanding legacy systems A lot of transformation effort gets lost in discovery. Banks may know their current systems are outdated, but not exactly how all the parts fit together. That makes planning slower and migration riskier. AI can help teams map what exists, understand where the complexity lives, and accelerate the move toward a modern core.

For large and complex banks, that could be the difference between another decade of delay and an actual transformation path. This is where the conversation shifts from “AI as a customer service tool” to “AI as a transformation enabler.” That is a much bigger strategic opportunity.

What Banks in Different Markets Should Notice

The interview also highlighted an important regional difference: digital transformation does not look the same everywhere. Moroney said the US market and developing markets are approaching banking modernization differently because they are starting from different places. The US is highly regulated and still has many banks running older systems. That means digital layers are often being added on top of legacy cores. By contrast, many developing markets have already moved further toward modern core systems and often choose vendors that can provide a more complete front-to-back solution. That difference shapes everything from speed to architecture to customer experience. Why this matters strategically For banks in developing markets, the advantage is often cleaner infrastructure and faster integration across digital, middle, and core layers. For large US banks, the challenge is more complex. They often manage more complicated products, older architectures, and heavier regulatory demands. That makes modernization slower, but also more urgent. The lesson is that there is no single banking modernization playbook. Each market starts from a different baseline, which means the path forward has to reflect local regulation, legacy complexity, and customer expectations.

What Banks Should Take Away from Sibos

If you only remember one thing from this conversation, make it this: three-quarters of customers are in the switchable middle. That means a bank can look healthy on paper while still losing relevance in practice. Customers may stay, but they are also testing alternatives – especially for payments and other everyday services. And once they start splitting relationships across providers, loyalty becomes much harder to win back. Banks should treat that as a strategic warning, not a statistical footnote. The practical response is to focus on three things:

• Reduce friction in the everyday experiences customers use most
• Modernize the core so the back end can support the front end
• Use AI to understand legacy complexity faster and move with less risk

The banks that do this well will be better positioned to keep customers engaged, not just retained. 

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Frequently Asked Questions

What is the switchable middle in banking?

The switchable middle refers to customers who are not unhappy enough to leave immediately, but not loyal enough to stay exclusively with one bank. They are open to using multiple providers and can switch services more easily than banks may realize.

Why are payments such an important banking experience?

Payments are a daily touchpoint, unlike products such as mortgages or personal loans. Because they often happen under stress or time pressure, customers are far more sensitive to delays, friction, or confusing processes.

Why is core banking modernization so difficult?

Core modernization is difficult because legacy systems are often heavily customized over decades. Banks may not fully understand all the patches, dependencies, and workflows inside them, which increases risk and slows decision-making.

How does AI help with banking transformation?

AI can help banks analyze legacy systems, understand business processes, map data, and even interpret code. That makes it easier to plan modernization and reduce uncertainty before migrating to a new core.

 

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