By AW de Vries, Co-founder & CEO, Silverflow
Despite handling countless transactions daily, the payments industry operates on a foundation of outdated technology. While these legacy payment systems have been deeply entrenched for years, recent advancements have opened the door for modernization.
These legacy systems impose a staggering financial burden on the payments industry. Annual costs, already at a hefty $36.7 billion, are projected to skyrocket to $57.1 billion by 2028. Instead of addressing isolated issues, a more strategic approach involves developing new technology that can coexist with these legacy systems. While a complete overhaul is impractical, payments companies must carefully evaluate how, when, and why to upgrade their systems.
This article delves into the significant financial implications of legacy systems, the untapped potential hindered by outdated technology, particularly in data analytics, and the strategic pathways for payment companies to transition to modern systems. In an era dominated by AI and machine learning, data is a crucial asset legacy systems often fail to leverage fully.
Modern World, Old Tech
The payments industry, a crucial cog in the $18.98 trillion e-commerce and $32.8 trillion retail ecosystems, is undergoing a transformation. Despite the global shift towards cashless transactions, the technology powering these transactions often dates back to the internet’s infancy or even earlier.
Behind the seamless payment experiences consumers enjoy lies a complex infrastructure cobbled together with decades-old systems. While these systems are mainly functional, they are inefficient and vulnerable to disruptions, as recent outages have demonstrated. With its numerous intermediaries, the labyrinthine payments ecosystem further complicates these challenges.
Emerging technologies like Open Banking promise to streamline payments but 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 gold, these systems cannot fully unlock the potential of payment data.
Created for a very different world, legacy systems were once sufficient. In the early days of payments, it was enough that restaurants didn’t have to bring out an imprinter and carbon paper for every credit card transaction. The idea of merchants and payment companies extracting more value from transactions than just timely funds was unthinkable. In a data-driven economy, however, this limitation is holding companies back.
Why are legacy systems still in use? Firstly, they are often indispensable, performing the most critical parts of the payments process. Replacing them is often nearly impossible, as the entire card network cannot be shut down for updates. Secondly, the sheer size of many payment systems means that payments companies can only replace small parts at a time.
The Cost of Antiquated 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.
A recent study estimates that FIs could miss out on an additional 42% of payments-related revenue due to their inability to create new products like Banking-as-a-Service and monetize the data generated by payments. This figure underestimates the actual cost, as it doesn’t account for the indirect benefits of data-driven insights in fraud prevention and cost reduction.
Failed payments also come at a high cost: they could cost subscription businesses more than £102 billion in 2025 due to ‘involuntary churn’ caused by customers’ cards expiring or being rejected. More modern payment systems could prevent some of this churn by intelligently routing payments to increase the likelihood of success and retrying failed payments.
Furthermore, legacy systems are a chokehold on innovation. The burgeoning fintech sector is built to revolutionize payments, but the limitations of outdated infrastructures often curtail their potential. 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 Hybrid Approach
While deeply integrated into business operations, legacy systems pose a significant bottleneck for the payments industry. Complete replacement is often impractical. A more strategic approach involves incrementally modernizing existing payment stacks by incorporating modern components. Upgrading 3DS authentication is a prime example of this.
Only a handful of companies have the expertise to execute a full-scale transformation of payment systems. This requires seamlessly integrating new technologies while preserving the core functions of legacy infrastructure. These companies can enhance functionalities and drive innovation by unlocking previously inaccessible data.
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.
About the Author
Anne Willem (AW) de Vries is the Co-founder and CEO of Silverflow, where he is responsible for product and the overall commercial, financial and operational activities. He combines a strong analytical mindset with a passion for delivering results. After finalizing his degree in Applied Physics, he joined the Amsterdam office of Bain & Company. He moved on to work in Private Equity, where he was responsible for portfolio companies in the Netherlands and Germany. He gained experience in card payments at Adyen, where he was part of the cards acquisition team.
Silverflow is a new payment processing platform designed for today’s payment needs and is fit for the future. It is a cloud-native solution with a single API for card networks with one platform and one connection. Reducing cost and complexity, easy to use, and data-rich, Silverflow frees you to innovate.