Nick Botha, Global Payments Lead at AutoRek
With the global economy accelerating towards a cashless paradigm, the explosion in digital transactions is placing unprecedented pressure on payment infrastructures. Transaction volumes are continuing to rise, and as a result its redefining the thresholds of system capacity, operational efficiency, and cost control. While higher volumes should translate into greater revenue, the reality is more complex: 90% of organisations are burdened by outdated legacy systems that inflate costs, create inefficiencies, and impede their ability to scale profitably.
Firms continuing to rely on manual processes, spreadsheet-based reconciliations, and siloed systems are not only facing spiralling operational costs, but they are also exposing themselves to compliance risks and regulatory penalties. With transaction volumes growing by an average of 32% over the past two years, the inability to efficiently process and reconcile payments is now a strategic business risk, one that competitors with modernised infrastructures are already mitigating.
Amid these ongoing pressures, a select group of forward-looking organisations are leading the shift towards automation and intelligence-led payment operations. With 82% of payment firms now prioritising automation on their transformation roadmap, and AI poised to be a game-changer over the next 24 months, the path forward is becoming clear. Standardising data formats, aligning with global frameworks like ISO 20022, and moving beyond spreadsheets are no longer optional — they are imperative for those looking to lead in a high-volume, high-stakes financial ecosystem.
The obstacles presented by legacy technology
Once the backbone of financial operations, legacy technology has now become a liability. These outdated systems are unable to handle the increasing complexity and volume of payment data, making it difficult for organisations to scale, adapt to new payment methods, and remain compliant – all while keeping costs under control. Manual processes and spreadsheet-based reconciliations are no longer fit for purpose in a fast-moving and highly regulated environment.
One of the biggest challenges is the incompatibility between legacy infrastructure and modern payment solutions. Many firms find themselves trapped in a diseconomy of scale – where increased transaction volumes should enhance profitability, but instead, legacy systems drive up costs and reduce efficiency.
This problem is exacerbated by industry consolidation. Mergers and acquisitions have left businesses with fragmented data processing solutions, often bolted together without a clear integration strategy. As a result, firms either continue using inefficient legacy systems or implement new technology that fails to optimise their data processing needs. Without a strategic approach to modernisation, firms will continue to face escalating operational costs, regulatory scrutiny, and barriers to scalability.
The hidden costs of operational inefficiencies
Many payment firms operate at a loss or are not yet profitable, relying heavily on front-end growth to generate the transaction volumes necessary for revenue. However, this volume-driven strategy often comes at the expense of operational efficiency. By focusing primarily on customer acquisition, firms frequently neglect critical investments in back-office processes, technology, and automation that are essential for handling rising transaction volumes effectively.
Rather than addressing inefficiencies through transformative investments, many firms opt for short-term fixes, such as expanding middle and back-office headcount. While this provides temporary relief, it fails to resolve the underlying structural issues. The cost of inefficiencies and errors continues to escalate, with organisations struggling to reconcile transactions effectively.
Why legacy systems are a regulatory liability
Failing to modernise payment processing not only impacts efficiency but also heightens regulatory risks. As financial regulations evolve to address the growing intricacies of payment data, legacy systems and manual processes struggle to keep pace. In fact, 75% of industry leaders anticipate that tightening regulations over the next two years will pose significant challenges for their businesses.
Regardless of whether regulatory scrutiny increases or decreases, one thing remains constant: the need for payment firms to ensure security, accuracy, and compliance. Many legacy systems lack the agility to support evolving safeguarding requirements. The Financial Conduct Authority (FCA) is currently working on new safeguarding guidelines, expected to mirror the rigid standards of its Client Asset Sourcebook (CASS), requiring firms to ensure customer assets are protected in the event of business failure. Legacy technology, with its siloed data and manual processes, makes it challenging to meet these expectations efficiently.
Firms operating across multiple jurisdictions must be prepared for both regulatory tightening and relaxation, depending on their markets. Rigid, outdated systems make it difficult to adapt to these shifting compliance landscapes, leaving firms vulnerable to financial penalties, reputational damage, and operational disruptions. To navigate this complex environment efficiently, payments firms must move beyond outdated systems and embrace modern, automated solutions. A robust, efficient back-office that meets regulatory standards while ensuring their data is accurate for reconciliation and reporting. Having the support of a technology partner that has a dedicated safeguarding solution will allow payments firms to meet upcoming regulatory requirements in an efficient manner.
How automation and AI are transforming the way payments are processed
While the need for transformation is widely acknowledged, many organisations require guidance and support to navigate the complexities of implementing new systems and processes. Addressing the challenges posed by legacy systems, fragmented data standards, and manual processes requires a multi-layered approach rooted in modernisation, standardisation, and automation.
Upgrading legacy systems is a critical first step, but AI alone will not solve the industry’s inefficiencies overnight. While AI is highly effective for probabilistic tasks like intelligently retrying failed payments, payments reconciliation requires explainable, rule-based decision-making, particularly in the face of regulatory scrutiny.
The real solution lies in transitioning to integrated, automated payment systems. By consolidating data sources, standardising formats, and adopting a unified data management approach, firms can streamline operations, improve regulatory compliance, and future-proof their payment infrastructure.
AI is already playing a significant role in financial operations, with 39% of payments professionals identifying it as the most impactful technology shift for the next two years. Although AI-driven customer-facing applications are still developing, back-office automation is already transforming payment processing, enabling faster, more efficient data handling, reducing delays, and empowering businesses to scale with greater agility.
Transforming payments for the digital age
Future-proofing payment operations has moved from a strategic advantage to a business imperative. Organisations clinging to legacy technologies risk being overwhelmed by rising operational costs, regulatory scrutiny, and scalability pressures. To stay competitive, firms must modernise their IT infrastructure and engage with fintech innovators. Those that embrace this transformation will be better equipped to manage growing transaction volumes, adapt to evolving regulatory frameworks, and, critically, meet the rising expectations of today’s digital-first customers.
