Anne Willem de Vries, Co-founder and CEO, Silverflow.
Although the payments sector handles millions of transactions daily, it’s an open secret that it relies on outdated technology that is too deeply embedded to replace or integrate with – until very recently.
These legacy systems already cost the payments industry an eyewatering $36.7 billion annually, with this figure worryingly projected to increase to $57.1 billion by 2028. Rather than addressing isolated issues as they emerge, a more strategic approach involves developing new technology capable of coexisting with these legacy systems. However, a wholesale overhaul of this infrastructure is far from practical. Payments companies must carefully consider how, when, and why to upgrade their systems.
This article will explore the financial burden of legacy systems, the untapped value hindered by outdated technology, particularly in terms of data, which is vital in an increasingly AI and machine-learning dominated ecosystem, and the strategic pathways for payments companies to transition to modern systems.
The Payments Paradox: Old Tech, New World
This transformation would be a consequential one, with the payments industry an important cornerstone of the $18.98 trillion eCommerce and $32.8 trillion retail landscapes. While cash remains prevalent in some regions, the global shift towards cashless transactions is undeniable. Yet, paradoxically, the technology powering these transactions often dates back to the dawn of the internet or even earlier.
Behind the seamless payment experiences consumers enjoy is a complex infrastructure patched together with decades-old systems. These aging systems, while largely functional, are not as efficient as they might be, and recent outages have shown they are vulnerable to disruptions. The labyrinthine payments ecosystem, replete with intermediaries, further exacerbates these challenges.
Emerging technologies like Open Banking promise to streamline payments, but they are not yet a complete replacement for the existing infrastructure. Moreover, the data-driven economy highlights the limitations of legacy systems. In a world where data is considered the new oil, these systems are unable to unlock the full potential of payment data.
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 as good as gold’, 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 Price of Outdated Payments systems
The repercussions of relying on legacy systems in the payments industry extend far beyond operational inefficiencies. These outdated infrastructures are a significant drag on economic growth and innovation.
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 figure likely underestimates the true cost, as it doesn’t account for the indirect benefits of data-driven insights in areas such as fraud prevention and cost reduction.
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.
Moreover, legacy systems are a chokehold on innovation. The burgeoning FinTech sector is built on the premise of revolutionising payments, but their potential is often curtailed by the limitations of outdated infrastructures. The ability to introduce groundbreaking payment solutions is hindered by systems designed for a vastly different technological era.
In essence, the cost of maintaining legacy systems is not merely financial; it’s an opportunity cost that stifles growth, hampers customer experience, and hinders the development of a more efficient and innovative payments ecosystem.
The best of both worlds
While legacy systems are a significant bottleneck for the payments industry, their deep integration into business operations often precludes complete replacement. A more practical approach involves strategically incorporating modern components into existing payment stacks. For instance, upgrading 3DS authentication is a prime example of this incremental modernisation.
Only a select few companies possess the expertise to execute a full-scale transformation of payment systems. This requires seamlessly integrating new technologies while maintaining the core functions of legacy infrastructure. By unlocking previously inaccessible data, these companies can enhance functionalities and drive innovation.
Essentially, the future of payments lies in a hybrid model that leverages the best of both worlds: the stability of legacy systems and the agility of modern technology.