By Kate Knudsen, Senior Program Director at BHMI
As financial services companies like banks, merchants, and payment service providers continue navigating the ever-evolving landscape of digital payments, the need to modernize aging back-office systems becomes increasingly urgent. These systems, often homegrown, were built to fit a company’s payment operations like a glove. While they’ve served their purpose for decades, the pace of change in real-time payments, compliance, and customer expectations makes them increasingly difficult to maintain, scale, and adapt.
When considering modernization strategies for the payments back office, companies typically weigh three options: Build, Buy, or Outsource. While Build and Outsource are common paths, the Buy option—commercial off-the-shelf (COTS) software—is gaining traction as an attractive, lower-risk, and more scalable alternative.
The Current Landscape
According to industry research, nearly 70% of banks still rely on legacy back-office payment systems, many built in-house. These applications often require specialized knowledge of the company and aging development languages (e.g., COBOL or proprietary scripting), increasing technical debt and limiting innovation.
Most organizations with legacy back-office systems also lack a complete understanding of the requirements needed for replacement. Much of this knowledge is tribal—held informally by long-tenured employees, and as members of that “tribe” retire or move on, that expertise is lost. As a result, when organizations attempt to modernize by building in-house, they frequently underestimate the scope and effort required. If they choose to outsource instead, they may encounter service limitations that don’t align with current operational needs, increasing the risk of disruption during the transition.
Yet despite the complexity, many companies stick with what they know. “It’s familiar, our team knows how to support it, and it’s tailored to our processes,” is a typical response. However, this path often increases fragility, costs, and security risks.
Build: Familiar, But Risky
The Build approach appeals to companies with robust internal IT teams. It promises full control and customization. However, it also comes with significant challenges: long timelines, high resource costs, and a maintenance burden. Custom-built solutions often become technical liabilities for companies without an agile DevOps culture or modern architecture practices.
According to Peter Tapling, Managing Director of PTAP Advisory, “In-house development may feel safer, but it often results in the same rigidity and lack of flexibility companies try to escape. Especially if the planning for a build does not include budget and commitment for ongoing maintenance and enhancement.”
Outsource: The “Easy Button” Isn’t Always Easy
Outsourcing operations or technology management is seen as the “easy button” for some companies. It can deliver faster time to market and reduce staffing needs. However, it can also lead to higher long-term costs, reduced oversight, and limited control over roadmap priorities.
Additionally, compliance and data security are significant concerns. For financial services companies prioritizing control and differentiation through operations, outsourcing can become more of a bottleneck than a boost.
Buy: A Modern Path with Hidden Strengths
Commercial, rules-based software platforms now offer an appealing option. Some companies have previously overlooked the Buy option due to misconceptions about lack of customization, inflexible pricing, or the effort required to go through a Request for Proposal (RFP) process. Internal IT teams may have also resisted due to perceived incursions on their domain.
But modern back-office platforms have evolved. Today’s solutions are:
- Rules-based and configurable – allowing companies to define workflows, exception handling, reconciliation and settlement processes with minimal effort.
- Modular and API-driven – supporting phased deployments and integration with existing systems.
- Scalable and secure – enabling secure, multi-tenant access, robust audit trails, and real-time data availability.
- Omnichannel and payment-agnostic – capable of consolidating data from all electronic payment types (credit, debit, prepaid, real-time account-to-account, etc.) and from any payment mechanism (ATM, POS, mobile, etc.) into a unified platform, eliminating siloed systems and providing an enterprise-wide view.
These platforms are not one-size-fits-all. They are designed to flex with a company’s unique operations, customer structure, and compliance needs.
“Companies don’t need to rip and replace their entire payments back-office infrastructure,” advises Anthony Serio, CEO of Serio Payments Consulting. “A company can start with one area, such as reconciliation or dispute management; let the software prove itself and build from there.”
Phased Adoption Minimizes Risk
A key advantage of buying is the ability to adopt functionality incrementally. A full lift-and-shift migration is not required. By modernizing one area at a time—such as exception handling or dispute case management—companies can reduce risk, learn as they go, and create internal champions for broader back-office modernization.
Making the Case to Buy
When considering payment back-office modernization, the Buy option delivers
- Faster time to value than building.
- More control and transparency than outsourcing.
- Built-in scalability and flexibility for future growth.
The hidden strength of modern back-office solutions lies in their ability to adapt to a company’s changing needs, not the other way around.
Modernizing the payments back office isn’t about picking the flashiest solution. It’s about choosing the right path to support long-term agility, compliance, and customer satisfaction. For too long, “Buy” has been underestimated. But with today’s flexible, modular, and rules-based platforms, it may be the smartest move a financial services company can make.
About the Author
Kate Knudsen is Senior Program Director at BHMI.
She has been in the payments industry for more than
30 years and is currently leading back-office modernization
projects for large financial services companies.
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