Eurozone Readiness: Bulgarian Banks' Strategy to Upgrade Legacy Systems

Original article published on:
Emergic Europe (English) : Eurozone entry: Time for Bulgarian banks to rethink and rebuild legacy systems
BGNES News agency (Bulgarian): Българските банки трябва да използват влизането в еврозоната за по-всеобхватна трансформация

According to the latest forecasts, Bulgaria is entering the eurozone in the very near future—January 1, 2026. This brings some challenges for Bulgarian banks, such as compliance with stricter regulations and additional convergence costs. However, being part of the eurozone also provides an opportunity for banks to take advantage of the momentum and modernize their card and payment products.

What does entering the eurozone mean for banks?

Bulgaria is about to enter the eurozone, which is generally considered to bring positive effects on lending and the development of the capital market. At the same time, banks face serious challenges in the form of stricter regulations, compliance with eurozone standards, and convergence costs of IT systems. The digital transformation demanded by the eurozone migration also means that Bulgarian banks may need to invest heavily in upgrading their online and mobile banking platforms to compete in the eurozone banking sector.

What we see is that Bulgarian banks tend to be preparing at their own pace. Some have already seized this moment, while other banks focus solely on compliance and ensuring the transfer of basic banking processes to the euro without added value or additional modernization initiatives.

"The biggest banks have long been ready as their headquarters are in the eurozone, e.g., UNICREDIT Bulbank and KBC UBB. As for domestic banks, I doubt there have been big changes as Bulgaria since 1997 has a fixed rate to the Deutsche Mark and the Euro – so it is a matter of adjusting only the exchange rate," says economist Evgeni Kanev.

The transfer to the Euro is both straightforward and seeded with technological risks stemming from outdated systems and processes. In this article, we wish to dive into these risks as we believe it is the prime moment to address them.

Why now? Seize the momentum to modernize legacy systems

Upgrading core systems is an incredibly complex but necessary strategic imperative for banks facing ever-growing expectations from the market and potential competition from fintechs and digital wallets. Approximately 70% of banks’ IT budgets are currently allocated to maintaining outdated systems, hindering innovation and profitability. Modernizing these systems not only frees up funds for developing a competitive edge, such as tailored products for specific customer segments, but also positions banks for long-term growth.

As mentioned, the momentum of eurozone entry presents a unique opportunity for banks to modernize their operations. While losing income from currency exchange might initially impact profitability, the potential of increased transaction volumes and expanded market access within the eurozone is substantial. To capitalize on this, banks must optimize their systems and processes, ensuring they are equipped to handle growing transaction loads and open market opportunities.

"Huge investments have been made to meet the ECB criteria since our Bank union joining in 2020, and these investments have not paid off due to the huge delay of our Eurozone entry," says Kanev.

Another aspect is the fragmentation of internal systems. Consolidating multiple legacy card systems into a unified, modern platform facilitates a smoother transition to the euro and positions the bank for future growth. Banks can thus mitigate the challenges associated with currency conversion and emerge as leaders in the evolving financial landscape.

Imagine a smooth card system migration

A well-defined and well-designed methodology will make a successful card system migration. This process typically starts with analyzing a bank's objectives and existing systems, based on which a plan is tailored for the new system configuration and data migration, including what data needs to be moved and how.

An important note is that collaboration between both business and technical counterparts is crucial while banks determine data sources, migration scope (historical vs. current data), new products, and the migration approach (phased for lower risk or big-bang for speed). Another aspect to consider is the data preparation itself; it can be handled by the bank or a third party (vendor) to ensure a smooth transition to the new system.

A strategic approach to modernization beyond the Euro

There is no doubt that upgrading a legacy system requires substantial investment as both ongoing IT and vendor fees need to be covered. Therefore, banks should consider if continuous investments in outdated systems are necessary if they know that larger modernization projects will be needed within the next five years. A smart step could be to initiate a combined Euro migration and system replacement project as this would maximize the return on investment by tackling both issues at the same time.

Tietoevry Banking’s experience in executing numerous Euro migration projects has highlighted the complexity of these processes. For instance, the seamlessness of transitioning ATM withdrawals from the old to the new currency or ensuring accurate account balances during the conversion is something that requires meticulous planning and execution.

Banks have a golden opportunity to leverage the eurozone entry for a more comprehensive transformation, not just a currency switch. By going beyond basic adjustments to reporting and product calculations, banks can optimize processes and modernize payment systems, if not in totality, then at least the minimum viable propositions. This proactive approach will ensure long-term competitiveness, positioning them for success well beyond the immediate transition in 2025.

If you want to know more about how to rethink and rebuild your bank’s legacy systems, feel free to reach out to us.