Despite processing millions of payments a day, the payments industry is being held back by outdated technology that has become too integral to replace or integrate with – until now.

Legacy systems are already costing the payments industry $36.7 billion per year, a figure that is expected to rise to $57.1 billion by 2028. Rather than addressing single problems as they become apparent, it can be more advantageous to develop new technology that can work with these systems. However, we should be wary of an all-or-nothing approach: tearing down the current payments infrastructure and starting from scratch isn’t an option, so payments companies need to be strategic about how, when and why they are upgrading their systems.

Here, I’ll look at the cost of legacy payments systems, the value that is being lost by not having more modern systems (particularly in terms of data, which is vital in an increasingly AI and machine-learning dominated ecosystem) and how payments companies can move from these outdated systems into those made for the 21st century.

The Promise and Problems in Payments

The payments industry is key to the world’s $18.98 trillion eCommerce industry and $32.8 trillion retail industry. Although cash is still king in many economies, either because of a lack of infrastructure or cultural reasons, a greater number of people are going cashless every year. It is becoming increasingly normal to never use cash, or to use it rarely.

You would think that in this situation payments companies would be using only the very latest technology, but this is often not the case. Some of the technology that powers online and offline payments is older than the commercial internet – sometimes as much as forty years old. Obviously, this technology still seems to work for the most part, as genuine payments outages are few and far between, but behind the scenes this system is being held together by patches and workarounds.

Similarly, anyone acquainted with the labyrinthine payments process knows that there are seemingly a number of middlemen in the process, and each of them could be using out of date or flawed technology that will slow down and destabilise the whole process. There are newer systems like Open Banking that promise direct payments from one account to another, but these aren’t ready to replace the current payments ecosystem yet and were never intended to.

More importantly, it was created with a very different world in mind. In the early days of payments, it was enough that restaurants didn’t have to bring out an imprinter and carbon paper every time a diner wanted to pay on credit card. The idea that merchants and payment companies could get more from transactions than just their funds in a timely manner was unthinkable, but today, when ‘data is the new oil’, it is holding companies back.

So why are legacy systems still being used? Firstly, they are often indispensable, performing the most vital parts of the payments process. Replacing them is often nearly impossible – the entirety of a card network can’t be turned off for updates. Lastly, the sheer size of many payment systems also means that payments companies can only replace small parts at a time.

The Benefits of Replacing Legacy Systems

So, what is this costing the payments industry and the world at large?  The study quoted above estimates that financial institutions (Fis) could miss out on an additional 42% of payments-related revenue because of an inability to create new products such as Banking-as-a-Service and the inability to monetise the data that payments generate. This last point might even be understated – it only considers the direct selling of data, and not the savings and fraud prevention that can be enabled by having unimpeded access to data.

Failed payments are also costly: they could cost subscription businesses alone more than £102 billion in 2025 due to ‘involuntary churn’ due to customers’ cards either expiring or being rejected. More modern payment systems could prevent some of this churn by intelligently routing payments to have a greater chance of succeeding and retrying failed payments.

There is also the possibility for innovation that is being stifled by using older payments systems. The entire FinTech industry is built on the idea that we can do more with our payments systems, but innovation often hits a wall when faced by the limitations of older payment systems. There are things that could be done that simply can’t be done with systems that are forty years old and only capable of transmitting a small amount of data with each transaction.

Going Beyond Legacy Systems

We know that legacy systems are holding the payments industry back, but they are often integral to a company’s operations, so it may not be possible to fully replace them. Instead, it is possible to incorporate newer components into a company’s payment stack – for example, handling 3DS. Today, there are only a few companies able to deploy fully modern payment systems, with the expertise in integrating new systems while legacy systems are still running, making previously hidden data available, increasing functionality and enabling innovation.