The heritage of legacy payment systems

The past 30 years has seen billions of dollars spent on payments systems - with financial institutions building up a plethora of different systems and technologies designed to meet specific needs and develop competitive advantage. However, as the payments infrastructure gets more intricate and unwieldy, the harder it is for financial institutions to realize the potential benefits of technology.

Software vendors and financial institutions have a lot to answer for when it comes to the complexity of payment systems. We have often seen financial institutions racing to be one of the first to market with new services. More often than not, the industry has bolted on a new platform for the new service, rather than spend extra time building new functionality into existing systems. The lack of maturity and adoption in service based software development methodologies resulted in the inability to bring to market a unified solution.  This has led to complex and siloed systems that have become a burden.

The technology that prevails in many financial institutions is a combination of old and new, dating from the 1980s, 1990s and 2000s. There is little room for scalability or agility in older systems, which are not designed for flexibility or the need for real-time processing. The result is an imperfectly integrated blend of old and new technologies that compound the tangle. 

Consolidation has also driven complexity. The number of independent financial institutions has decreased rapidly over the years, as larger institutions seek growth and expansion through a wave of mergers and acquisitions. But along with new markets, new customers, and new revenue opportunities, financial institutions have also acquired additional systems to add to their own rambling infrastructure.

Another driver of system duplication and complexity is globalization. Facing diminishing returns from domestic markets, established financial institutions in North America, Europe and Australia have turned to Latin America, the Middle East and certain countries in the Asia-Pacific region, where the prospects are much more attractive. Regional institutions have been acquired and in the process their existing systems, designed for local requirements and legislation, have been added to the payments landscape of the bank.

Finally, the regulatory landscape is changing rapidly, bringing with it new demands for compliance, audit, transparency and control. Financial institutions will need to update platforms and processes necessary to issue and manage cards in this new environment.

As a result of all of these factors plus customers' constant demand for new and more convenient methods of payments such as mobile, technology has become all-pervasive: it has multiplied through all aspects of a financial institution's payments operations and replicated across channels, payment types and business divisions. Many organizations are, in effect, a series of separate mini banks that simply operate under a unifying brand, but with a completely independent view of external customers and internal resources. But at some point, the development of monolithic systems that increasingly consume the development and support budgets at banks has got to stop, and financial institutions need to take a long-term, cross-organization view for the future of their payment systems.  The need to move to the next generation system is no longer disputed but how that migration should occur is the key question.  Banks must develop a plan to migrate to a more modular and unified system that offers the business agility required but does not compromise the availability, reliability, and scalability of the legacy systems.