There’s a shift underway in the world of banking, financial services, and insurance (BFSI). It is not about launching flashy new digital products or reimagining customer touchpoints (although those are still in motion). It is an internal shift, infrastructure-focused, and quietly critical: modernizing workforce identity.
According to the recent Thales BFSI survey data, 93% of organizations have acknowledged the need to update their workforce Identity and Access Management (IAM) systems. Also, nine in ten believe that a successful modernization will bring their group stronger security, more innovative identity controls, better use of the cloud, and more work done by their people.
What is more telling, however, is the tone of urgency and the widespread understanding that legacy systems are becoming a limiting factor, with three-quarters (75%) saying legacy identity tech is stifling innovation. A 2024 Statista survey backed this up, saying the most significant burden on organizations trying to modernize their IAM lay in the weight of old technology. More than half (54%) named legacy systems as their chief foe.
Let’s take a closer look at why this modernization matters and what’s at stake if overlooked.
The Risks and Realities of Sticking with Legacy IAM
Legacy identity systems, often cobbled together over years of acquisitions, compliance responses, and stopgap IT projects, are no longer keeping up with modern operational needs. In a sector where both security and agility are paramount, these aging systems often fail on both counts.
The Verizon 2025 Data Breach Investigations Report confirms the risk. Stolen credentials remain the top driver of breaches, with attackers exploiting weak or mismanaged identity controls as a primary entry point. For many BFSI firms, workforce IAM is still too fragmented, managing access across outdated, siloed applications without centralized governance or visibility.
This is a security problem and a productivity one, too. Delays accumulate when employees encounter friction accessing the tools and data they need (particularly in a hybrid or remote-first work environment). Workarounds emerge. Shadow IT grows. The end result? Slower operations, increased risk, and mounting technical debt.
Operational Efficiency: Automating the Access Lifecycle
Improving operational efficiency is one of the most consistent themes driving IAM modernization. That means going beyond streamlining login experiences to automating the whole identity lifecycle.
In modern environments, employees may join a company, change roles, take on temporary projects, or work across multiple systems, all within a short period. Concurrently, 91% acknowledge that the number of apps and data sources the average employee needs to access will grow, too. Manually managing access through this lifecycle is inefficient at best and risky at worst. Automating provisioning, de-provisioning, and entitlements ensures access is appropriate and timely, reducing administrative overhead and the risk of over-provisioning.
This is backed up by PwC research, which claims entities using integrated cybersecurity suites (which typically include automated IAM and identity governance tools) are more often able to avoid expensive and embarrassing breaches. Conversely, fragmented solutions link to higher breach costs, emphasizing automation’s role in reducing errors and security risks.
This is particularly relevant in BFSI, which handles a trove of sensitive information and where audit readiness and regulatory alignment are ongoing priorities.
Supporting Digital Transformation from the Ground Up
It’s easy to think about digital transformation purely in terms of customer-facing services, mobile apps, real-time payments, and automated onboarding. However, none of these initiatives succeed without internal systems that support flexibility, speed, and control.
Modern IAM systems are a critical enabler here. They allow organizations to securely adopt cloud-based platforms, scale internal applications, and extend access to new tools without introducing risk. According to McKinsey, banks that embed modern identity infrastructure into their digital transformation strategies are more likely to reduce time-to-market and improve resilience.
This means tighter integration between IAM and cloud infrastructure, APIs, and HR systems. It means building identity into architecture, not bolting it on as a security afterthought. This is where legacy systems often show their age. Designed for static, on-prem environments, they weren’t built to handle the dynamic access needs of a modern digital workplace.
A Measurable Boost to Productivity
IAM also plays a more direct role in employee productivity. With BFSI staff frequently jumping between platforms, tools, and systems multiple times daily, identity friction can become a real business issue.
When identity systems work well, this experience is seamless. Single sign-on, intelligent session management, and role-based access mean less time logging in and more time focused on work. But when systems are outdated or disconnected, even basic tasks become inefficient.
IBM research on identity modernization backs this up: firms that invest in IAM upgrades see marked improvements in productivity, particularly when single sign-on and adaptive authentication are implemented. And in a sector where time often equates to revenue, these gains are not incidental.
What’s Next: Budget, Buy-in, and Beyond
The survey also points to a clear trend: IAM budgets in BFSI are set to grow by more than 11% this year. That’s not a small investment, especially in a climate where IT spending is under scrutiny. However, the rationale is straightforward: modern identity is becoming the foundation of broader business and technology strategies.
Modernization also requires buy-in across functions, from IT and security to compliance with HR and line-of-business leaders. Educating internal stakeholders on the role of identity, not just in security but in productivity and transformation, will be key to sustaining momentum.
Gartner advises firms to approach IAM modernization in phases, starting with foundational capabilities (like identity governance and SSO) before expanding into advanced use cases such as just-in-time access or adaptive identity orchestration. BFSI firms that follow this measured approach tend to see better outcomes and lower project risk.
The need for IAM modernization in BFSI is widely recognized, and it’s increasingly being acted on. However, success will depend on deploying the right technologies and aligning modernization efforts with broader operational goals: efficiency, transformation, and productivity.
Ammar is a digital transformation leader specializing in Product Marketing with a focus on B2C Customer Identity and Access Management (CIAM) within the Identity and Access Management (IAM) sector at Thales. He is a recognized thought leader in digital banking and payments, sharing insights at various international conferences and authoring articles for industry publications. When not implementing strong customer authentication and fraud prevention strategies, Ammar enjoys a nice game of cricket!
Written by Ammar Faheem
