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Banks are investing huge sums in legacy payment technology, but missing out on potential revenue opportunities available through the lates cloud-native platforms, according to IDC research.
According to IDC Financial Insights, global finance firms will spend £57bn on legacy payments technology in 2028, compared with £36bn in 2022. Meanwhile, it is suppliers that are investing in the development of modern cloud based platforms.
The IDC Future -ready payments platforms enabling the next phase of growth for banks report, which was sponsored by payments infrastructure supplier Episode Six, said banks face missing out on additional revenue and face growing costs by maintaining legacy payment technology.
The retirement of legacy core banking systems within banks was fretted over for years before cloud computing technology came along and finally started the process. Similarly, legacy technology used by banks to process customer payments is still widespread, with there currently being a lack of cloud-native cloud technologies in the core of payments, although cloud services are often wrapped around them.
Due to the reticence of financial services organisations when it comes to moving to cloud-native payments systems, IDC said banks are missing out on potential revenues from offering services such as deferred payments or digital wallet platforms as well as the monetisation of data.
Michael Yeo, associate research director at IDC Financial Insights, said that payments innovation is being driven largely outside of the banks’ walls: “For banks and financial institutions that wish to be competitive in the next phase of payments, a future-ready payments platform will provide the core capabilities required, including quickly integrating a modern payments technosphere.
“Migration methodologies have become optimised and provide easier and less risky options to move away from legacy to truly embrace digital transformation by leveraging cloud infrastructure's specific properties.”
IDC said banks and financial institutions are partly being driven towards modernising payments by consumer demand for more payment choices, with 70% of retailers adding at least two new payment options, such as QR codes, contactless, or alternative payment methods.
One major financial services firm that has made the move is UK building society Nationwide. It recently announced that it is working alongside Accenture and account-to-account payments platform provider Form3 to move all retail payments from on-premise systems to the Form3 cloud-native platform.
The project, which began last year, will be completed in a series of phases, with Accenture supplying cloud engineering and architecture expertise. Once on the platform, Nationwide payments will meet the ISO 20022 global standard for a common language for payments worldwide.
In March, Otto Benz, payments director at Nationwide, told Computer Weekly that “there has been massive growth” in cashless payments, with Nationwide processing around 450 million retail transactions each year.
“We needed a solution that will evolve alongside our business, facilitating an increasing volume of payments whilst meeting the expectations of our customers,” added Benz. “This project is a major step in simplifying and strengthening our payments processing.”