Amid the challenges brought by the pandemic, payments have become an even more crucial digital battleground for banks. But is legacy technology creating barriers to innovation? Douglas Blakey reports

Despite the pandemic of 2020, it has not been a year without memorable payments innovations. Examples include the NatWest biometric payments fob. Another likely contender for 2021 industry awards will be the American Express Pay with bank feature, leveraging open banking transactions.

Or take Curve, combining credit and debit and cards in one app. Then there is Lydia, disrupting French payments in partnership with Marqeta, to create flexible payments options for consumers at scale.

And it is the same Marqeta that has been sounding out the bank sector in Europe to assess the potential for banks to leverage payments to differentiate themselves.

The idea of an industry held back by the legacy platforms it is built on is not a new concept in technology. But what is new, is just how restricted and frustrated banks surveyed feel.

According to the Marqeta European Banking Survey, released as EPI goes to print, 94% of bank executives say that payments have become a “technology arms race.”

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However, 84% of respondents said that legacy infrastructure is restricting them, making it almost impossible for them to innovate, at a time of increased scrutiny and great need.

Uber, Amazon set the bar

“The likes of Uber, Amazon, and Deliveroo, have set the bar when it comes to expectations around payments; having a slick and convenient way to pay has become a fundamental part of the customer experience. In our view, Covid1 9 has greatly shifted behaviours and led to a surge in adoption of new payments technologies.

“This may increase the pressure to innovate at speed and maintain pace with digital innovators, driving a technology arms race. Banks seem to be vying with each other to rapidly develop and launch new payments experiences to stay relevant and gain an advantage over rivals,” comments Ian Johnson, Managing Director Europe at Marqeta.

Three-quarters of executives said that Covid-19 had changed their strategy, but 60% said that the lack of flexibility and agility of legacy systems was a significant challenge when implementing and preparing for future strategy. More than half (56%) said that they battled a lack of agility when building and launching new services.

It’s not just that they’re held back from launching new features, but that the technology they’re building from is making innovation costly and time consuming. More than two-thirds of executives surveyed (67%) said the length of time it takes to deliver new services to market was a challenge, while 55% said the cost of maintaining and managing legacy systems was holding them back.

As a result, banks are facing delays getting almost every form of payment innovation off the ground: from digital wallet functionality (42% surveyed faced difficulties), to modern business lending programmes (36%), modern debit card programmes (29%) and point-of-sale financing services (26%).

Balancing new products on top of legacy infrastructure

At the highest level, the two central issues for banks Marqeta surveyed were a lack of integration between the user experience of their product and their banking infrastructure, and outdated technology and processes. Nine out of ten executives surveyed said that the lack of back and front-end integration was slowing their time to market, while 84% said that their internal technology and processes were slowing them down.

The purely technological implications of these findings are more obvious. Thirty-nine percent of people surveyed said that their core banking platform was just too complicated, and that this complexity was holding them back from innovating at speed.

This directly bleeds into the developer culture within traditional banks, where changes need to be made wholesale with little room for rolling improvements. One-third (33%) said they lack an iterative DevOps approach internally and instead of making improvements to services as needed, tended to execute large scale rollouts over months (or even years).

This is forcing banks into a lose-lose situation. Almost half (46%) said that the lack of customisation options means they face large up-front costs to introduce new features. More than half (55%) said disjointed and siloed payment platforms made introducing new features inefficient, but upgrading was just as much of a headache, with 62% finding it too difficult to integrate legacy technology with modern systems.

But while these issues began with technology, they crossed over into culture. More than half (58%) of bank executives surveyed said there was a prevailing preference for the status quo and a culture of unwillingness to take risks, while 44% said that previous poor experiences had created a lack of trust, and 35% said the siloed nature of their teams made getting internal alignment difficult.

The need to break free

“Banks must break free from the shackles of legacy technology and embrace more agile systems built for the digital era. By harnessing technologies such as modern core banking and payment platforms, banks can innovate at the pace required to deliver new payments experiences to the market,” concludes Johnson.