Why legacy payments platforms should stay in the past and not underpin your future

Three sticking points for FIs and how to see past them

The word legacy is definitively used in the payments world as a synonym for “old.” We’ve been using it to describe payments platforms, systems and software for decades – typically referencing the monolithic mainframes built 60+ years ago that surprisingly often still underpin some of the largest banks today. Industry experts, vendors and FIs themselves have used a multitude of forums over the last twenty years or so to denounce the shelf life of older platforms and their projected expiration dates in the modern payments world, yet legacy, in its many forms, still prevails. 

A paper by PNR describes legacy as “a system that is business critical and demonstrates one or more of the following characteristics: old age, obsolete languages, poor documentation, inadequate data management, a degraded structure, limited support capability and capacity, increasing maintenance costs, and lacking the necessary architecture to evolve.” In which case, we need to broaden the definition from antiquated mainframes to include systems originating from more recent eras, which, despite tangible advantages over their predecessors, are not “today-ready.” After decades of underinvestment, even platforms born in the 90s can lack the manoeuvrability to ensure a successful future for an FIs business in an increasingly competitive and crowded marketplace.

It seems obvious to the outside eye that well-established payments players sitting on a patchwork quilt of legacy architecture – that has been continuously extended with new features and standalone solutions with interfaces into multiple systems, creating a tangle of dependencies with no clear structure – should want to get their house in order. And they do. 

Platform vendors have unique insight into why FIs remain clamped to legacy, despite all the drawbacks, with their first-hand view of the trepidation FIs have when considering core system replacements. In excess of 45% of RFPs today result in the FI choosing to stay with their incumbent vendor; the three most common reasons cited being immediate financial cost, fear of migration and a lack of understanding of the options available to them. 

The trend during the RFP process towards replacing like-for-like but just “newer” is rife, and the exploration of software and systems that can truly differentiate a business often falls into a battleground between the technology-focused and the business-focussed. Twinned with internal politics, red tape, approvals from boards often not involved in the day-to-day running of the FI, and decision makers with bonuses dependant on reducing spend, these conflictions often lead to the breakdown of the RFP and the decision to “look again” in a couple of years. This “not now” approach essentially removes any imminent business risk and cements the actual risk of maintaining aging platforms as a tech problem, not a business concern.

The reluctance to rebuild or replace this backbone architecture isn’t unwarranted, it is a huge undertaking and there is always risk, no matter how mitigated. However, the scales are no longer balanced and doing nothing to temporarily appease boardroom politics will soon become an option that is fundamentally detrimental to any business looking to go the distance, be competitive and retain and grow market share.

1 - Immediate financial cost

It is fundamental to look beyond initial cost and to focus on TCO rather than the initial purchase price. This investment is into the future of the business and is about overall business strategy and long-term value creation as much as it is about streamlining operational costs and system replacement.

Initial investment may seem substantial, however this will be offset with longerterm cost savings. The costs and risks of maintaining legacy infrastructures are growing exponentially. These costs continue to grow the longer they are left, as technologies become more obsolete and expensive to operate; with the very real problem of a dwindling pool of experts with both the institutional and technical know-how to support core systems. Attracting new talent becomes an impossible task with an IT environment unattractive to younger generations seeking out work with modern technologies.

Cost implications transcend day-to-day operations and workforce availability, into the complexity of making modifications, introducing new products and services to market, the time it takes to release new functionality, responding to market and customer needs, complexity of upgrades, the ability to remain competitive on cost, ensuring regulation and compliance, service delivery costs, optimisation, performance, flexibility, scalability and future-readiness.

Focussing only on the perceived cost of transition can be detrimental to any FI. Many concerns and fears can be alleviated by having a comprehensive modernisation strategy in place and by partnering with a vendor that can offer flexible pricing, various migration options and deployment models to suit an FIs requirements now and well into the future.

2 - Fear of migration

The central position that legacy payments platforms have in the FIs overall architecture means that any change has an immediate and knock-on effect to all systems, operations and processes at play, with extensive dependencies and complexity. The more complex the legacy systems being replaced, the more complex the migration is anticipated; and the aversion to move away from these spaghetti systems increases.

Until recently, the only readily available option for system modernisation was total replacement; whether big bang or phased. However, with the increasing flexibility of options available in the market, this is no longer the case. Stepping away from the more typical solution of complete replacement or temporary solutions such as wraparounds, forward-thinking vendors can offer everything from integration hubs and system orchestration to cloud-deployments, hybrid deployment models and more. It is always worth seeking advice from an analyst firm or payments expert with a deep understanding of migration options, rather than falling into the trap of “doing things how they have always been done”. Today, there are numerous approaches that can optimise modernisation whilst minimising disruption.

If further reassurance is required, FIs can ask vendors for examples of system migrations they have completed with cases similar to theirs, or from named incumbents, to highlight the main issues and how they were overcome in order to alleviate concerns.

3 - Awareness of available options

It is too late, too complex and too risky to continue with IT modernisation strategies that rely on building on top of, integrating into and extending legacy platforms, systems and components. The emphasis can no longer be on “making it work for now” – FIs need to embrace transformation. The first step is being fully aware of all of the options out there. 

Due to the aforementioned propensity to replace like-for-like, opportunities to truly apply a transformative strategic vision can often be missed. As payment platform deployment trends shift from in-house to outsourcing, from on the ground to in the cloud, FIs have multiple options available to them. These options, whether provided by a software license vendor or a processor, should enable FIs to scale up, scale down, bring components in-house and outsource others as required, and ultimately evolve their business in line with their own strategy rather than the capabilities and/or constraints of their provider. 

Remaining relevant and having the underlying technology to ensure this relevancy is an intricate web of decision making, risk and responsibility. The future is unknown, and change without careful planning and an understanding of all the tools and options available can be expensive and risky. Is it any wonder that FIs are reluctant to change? When it comes down to it, committing to keeping spaghetti legacy systems alive is akin to buying a property and, over the years, extending it, adding floors, balconies, terraces, garages, conservatories, etc. The end result is a complex structure without the architect who drew up the original plans and no owner to organise the Frankenstein-esque structure it has become. By finally deciding to move away from legacy to modern architectures, FIs are laying the foundation for an environment that allows them to connect to anything, anywhere; ultimately ensuring their agility for whatever the future may bring.