We look at the top three biggest legacy modernization challenges for payments companies — and how to overcome them.
Early adopters of technology may have had the advantage at the time, but they now find themselves in a tricky situation: Their systems are out of date. Without compatible software, companies will not be able to utilize new features in the marketplace — and may struggle to keep up altogether.
In a recent interview with PaymentsJournal, our Director of Strategic Alliances & Partnerships, Soumya Johar said, that organizations need to approach modernization as a customer-centric journey.
“I think what one needs to stay cognizant of is how to keep their applications and architecture nimble, innovative, and evolving to meet those needs. It’s not a destination that anyone is working toward, but rather a journey”.
For the payments industry specifically, outdated tech can lead to inferior customer experiences, as well as challenges in security compliance. And change is happening fast; in Pwc’s annual CEO Survey, it found that banking CEOs were the most concerned with the speed of technological change (81%). With such high stakes at play, modernizing legacy systems should be a top priority of any payment company with an older technology stack.
Modernize vs. Retire
The first stage of technology overhaul is deciding whether you should modernize your existing technology or retire it — which means, replacing it with an entirely new system. This decision will hinge on two key questions: How competent is your legacy system at handling the day-to-day of your business and how reliant is the company on this framework?
If the technology can support the fundamentals of payments (and do it well), then slow and steady modernization to support newer features may be the right route. Similarly, if the financial institution has proprietary technology that was designed specifically for the company’s needs, then it may be more cost-effective to improve the current model, rather than start over from scratch. On the other hand, if technology is struggling at a basic level, then retiring may be necessary. Even those systems that function but don’t add specific value may be better off being replaced entirely to build a more reliable infrastructure for the long term.
Modernizing can be done in phases, allowing for a gradual approach that is both cost-effective and minimally disruptive to operations. It is important to remember that even the most successful strategy will be limited in scope; the core infrastructure will remain and dictate which software features can or cannot be integrated. Retiring enables a company to begin anew and be as ambitious as it would like, yet this is usually much more labor-intensive — and expensive.
Slow & Steady vs. Rip & Replace
The modernization vs. retirement conversation is linked heavily to the debate between a “rip and replace” method or a more systemic, phased approach. No matter the scale of the technology makeover, payments companies will have the option to make all the changes at once, in what is sometimes described as a “Big Bang” move. Alternatively, they can choose to move through a series of stages and introduce new elements over time.
Despite the exciting name, a Big Bang approach is usually the less effective choice. When a company chooses to wait until everything is ready and then migrate in one go, there is a lot of pressure to get each piece right. These projects are often too ambitious in scope and can take years to fall into place — time that the company may not have if it’s currently working with outdated technology. This longer timeline may also mean the finished product will be out of date by the time it is launched, especially with shifting consumer preferences.
Instead, payments companies will likely want to consider a phased approach. By splitting their modernization efforts into priority categories, financial institutions can focus on the areas of their business that stand to gain the most from technical innovation. These departments or teams can then function as a test case for the larger business, providing an opportunity to test and refine modernization efforts. This ensures that minor implementation errors are not replicated throughout the company, which can easily happen when updates occur simultaneously.
A systemic strategy also ensures that employees can continue to work with familiar technology, even as new features are added to the system. By providing this reliable infrastructure, payments companies can protect their daily operations and ensure consistent service for current customers. In turn, the knowledge that these basic functions are protected should free up the business to be bolder in its innovation; the limited impact means they can take bigger risks.
Compliance and Usability
One of the main drivers of modernization in payments is the need for customer data to be accessible yet securely stored. Staying in compliance with current banking regulations can be near-impossible with legacy technology, due to the frequent updates and the increasing role of digital formats. Add to that, from the customer perspective, there is a simultaneous desire to access private information with a click and yet have it kept safe from any potential cyber threat.
Achieving both of these elements at once is a delicate balancing act. It would be easy to introduce a number of impenetrable safeguards to protect customer data, but this would likely hinder the customer experience by requiring multiple hurdles before they could access their own information. Similarly, making everything easy to access would be simple, but could leave the company — and its customers — vulnerable to online fraud.
Whichever approach they choose, companies must keep in mind how they plan to extract their customer data from old software and how they will store it going forward.
Building a Future Legacy
Companies that invested early in technology may be frustrated with the constantly evolving digital landscape. Fortunately, that innovative mindset is what’s needed to keep up with the competition. Whether integrating a few new curated features or introducing an entirely new software framework, payments companies can modernize their legacy systems. They just need to identify the right strategy for them — and then act.