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Out with the old

After a number of years of steady activity, we are now seeing increasing numbers of financial institutions starting to migrate their legacy payment systems.

It seems to be a number of factors have come together, which means that organizations around the world who have perhaps been delaying the inevitable, are starting to move forward. One key driver is, of course, banks’ long budget cycles, what have delayed many IT teams from upgrading out-of-date technology before now. The other pressure that I hear all the time is the desperate need to consolidate systems – banks, especially some of the bigger ones, are sometimes carrying dozens of different payment systems, and they simply can’t carry on like that.

Once they have made the decision to move, the choice of which direction isn’t easy for any bank. Ultimately, the individual/s making the choice of new system will be the ones accountable if they make the wrong decision, and it won’t be a cheap mistake! So the process is inevitably long and complex.

One of the factors throughout all the project that we see is the need for proven, on-the-ground experience. Banks prefer to work with organizations who know their specific market needs, and so, from a vendor perspective, it is always easier to get new customers in a market in which we have existing customers – the more banks in one market using a solution, the more likely it is that another bank will also select it.

It also comes down to the people – all payment systems, no matter how established, will require a degree of customization to meet a bank’s individual requirements, and the success of that part of the project comes down to the people who are doing the work.

 As we move into 2012 I expect that this trend of more and more banks upgrading their payment systems will continue. I wonder who will end up being left behind.


Comments: (1)

Peter Bove
Peter Bove - Aviso - London 19 June, 2012, 13:24Be the first to give this comment the thumbs up 0 likes

Isn't the issue that there is no interest in swapping one legacy system for another, particulalrly when the "new" products are over 10 years old.

The cost and risk associated with changing a payment system is immense and there is contention for scarce resources. Meanwhile, the revenues derived from processing payments is reducing, requiring banks and processors to reduce the cost per transaction, despite cost hikes from vendors.

Surely the best approach is to maintain the proven and reliable legacy transaction processing engine and provide new services by adding to the legacy system. This can be achieved by modifying the current system (slow, expensive, high risk and still requires scare resources) or surrounding it with more flexible technology (faster and cheaper and reduces vendor "lock-in").

To mitigate the cost and risk of migration there needs to be a good business reason and it needs to result in a significant reduction in cost.