Lenders face modernization gap as legacy systems slow

Lenders are among the finance companies under pressure to modernize aging technology platforms as legacy systems limit innovation, compliance management and AI integration. 

About 74% of the 250 lending professionals described their lending environment as primarily legacy-based, while only 10.6% operate fully within cloud-based platforms, according to the Platform Migration and Modernization Survey released June 2 by lending technology provider Carleton.  

Although 76.5% rated modernization as very or extremely urgent, just 8.7% reported completing a platform migration as of the second week of May, when the survey was conducted. 

“The belief is that if they don’t modernize their platform, they won’t be able to connect to some of these AI tools and capabilities that are coming out,” Tim Yalich, vice president of business development at Carleton, told Auto Finance News, a sister publication of Equipment Finance News, during the recent National Independent Automobile Dealers Association Conference and Expo in Aurora, Colo. 

Legacy systems strain resources 

The biggest challenge is not a lack of interest in modernization, but limited internal resources, according to the survey. About 74% of respondents spend at least 60% of their technology resources on maintaining existing systems, with one-third of the respondents spending between 80% and 100% of those resources on that maintenance. 

“All the IT resources are burdened with just maintaining the status quo day to day,” Yalich said. “These entities don’t have the resource capacity to advance their own platforms on their own.” 

The modernization push extends across asset-backed lending, as Wolters Kluwer’s Q1 Auto Finance Digital Transformation Index showed digital adoption in auto finance increased 61.4% from Q1 2022 to Q1 2026, while its Q1 Equipment Lease Finance Digital Transformation Index showed equipment finance digital adoption increased 46.6% over the same period. 

For lenders and finance providers, modernization also intersects with customers wanting more flexible financing structures, Anthony Sasso, senior vice president and head of equipment finance at TD Bank, told EFN.

“There’s more of a receptivity today than I’ve seen ever in my career,” he said. “Clients want to hear about solutions and what we can do from an equipment-financing perspective.” 

AI still needs oversight 

Although AI remains a major driver of platform modernization, lenders still need experienced compliance professionals to verify regulatory decisions, Yalich said. 

“It’s definitely getting better very fast, but it still requires someone to verify,” he said. 

Technology changes also are raising the stakes for dealers and lenders as risk moves deeper into the transaction process, Evan Baker, chief risk officer for Capital One Auto, said during a June 23 presentation at the NIADA conference. 

“The bad side is the dealer actually carries a lot of the risk,” Baker said. “Lenders, do what you do on an airplane: When it’s going down, you put your oxygen mask on first, then you help others.” 

Yalich said as technology advances and regulations become more complex, lenders that continue relying on legacy systems risk falling behind competitors. 

Check out our exclusive industry data here. 

This story first appeared on Auto Finance News, a publication of Royal Media.