Nadish Lad, Global Head of Product and Strategic Business, Volante Technologies
Nearly two-thirds of global businesses invest more than $2 million USD per year in maintaining and upgrading legacy systems. For traditional banks, these systems have long been the foundation of their operations. However, with data silos, outdated architectures, and a lack of interoperability, legacy infrastructure is increasingly becoming a burden. While full-scale replacement promises a clean slate, the high costs, risks, and resource demands make it a daunting option.
While ripping out legacy infrastructure in favour of a modern core can offer long-term advantages, the significant financial and operational risks make this a challenging path. The real challenge lies in finding a strategic middle ground – an incremental approach that modernises payment systems without excessive disruption, allowing banks to evolve without jeopardising stability or security.
The pitfalls of ripping and replacing
Large-scale system transitions demand extensive financial investment, long development timelines, and deep technical expertise – resources that many institutions struggle to allocate.
IT teams are already stretched thin, managing day-to-day maintenance, security updates, and regulatory compliance. Adding an all-encompassing system migration to their workload can lead to prolonged downtimes and increased operational risk. Even with the promise of modernised infrastructure, the risks associated with wholesale replacement often outweigh the benefits in the short term.
Why sticking with legacy systems is a gamble
Banks that hesitate to modernise their payment systems are already feeling the impact. In the UK, major financial institutions have faced outages, reportedly linked to outdated banking infrastructure, which highlights the cracks in legacy technology. These systems, built decades ago, were never designed to support modern APIs, real-time data exchange, or seamless integration with emerging fintech solutions.
The inability to scale is another major concern. Research shows that 53% of financial institutions relying on legacy systems struggle with production bottlenecks and data silos, hampering their ability to innovate. Meanwhile, cloud-native challengers are rapidly launching new services, leaving traditional banks lagging behind. This lack of agility is evident in the fact that only 32% of banks are confident they can respond to market needs in time.
The practical approach of incremental transformation
Banks recognise the need for modernisation but are wary of the cost, complexity, and risk of full-scale system overhauls. Instead, an incremental approach, where modernisation happens in phases, has emerged as a more practical and risk-averse strategy.
While it can be a slower process, a phased approach offers a safer path, allowing institutions to upgrade high-impact areas such as payments, onboarding, or compliance, before scaling cloud adoption. This controlled rollout minimises disruption while improving efficiency and scalability. It’s a shift reflected in rising global IT modernisation spending, as banks prioritise agility without jeopardising stability.
A smarter path for payments modernisation
One of the most effective ways to modernise payment infrastructure without a full-scale overhaul is through low-code and no-code solutions. These platforms allow financial institutions to integrate new functionalities with minimal coding, easing the strain on IT teams.
By using intuitive interfaces, even non-technical staff can assist in streamlining payments infrastructure, enabling banks to future-proof their technology stacks without the complexities of a complete rebuild. This not only accelerates cloud adoption but also facilitates the transition to Payments-as-a-Service (PaaS) models, reducing costs and improving system flexibility.
As real-time payments and ISO 20022 standards gain traction, financial institutions must enhance their data processing capabilities to remain competitive. Legacy systems are ill-equipped to meet these demands, making a gradual, strategic approach to modernisation more critical than ever.
Spending on outdated payment systems is projected to hit $57.1 billion by 2028. The question isn’t whether to modernise, but how to do so in a way that balances cost, risk, and long-term viability. The middle path – embracing phased transformation and leveraging modern integration tools – offers the smartest route forward, ensuring banks remain agile and competitive without the upheaval of wholesale replacement.
