Outdated back-end systems cripple payment processes: why contemporary user interfaces fail when the back-office is still on DOS
Modernizing Payment Infrastructures: Banks Embrace Digital Transformation
In the rapidly evolving digital financial landscape, banks are increasingly adopting modern strategies to remain competitive. Here's how they are transforming their payment infrastructures:
Embracing Open Architectures
Open, service-oriented architectures are enabling banks to integrate wallets, blockchain solutions, or third-party services, fostering a more interconnected and customer-centric ecosystem.
Implementing Payment Hubs
Establishing centralized payment hubs serves as the core platform for payment processing and connectivity. These hubs bridge legacy core banking systems with new payment types like instant payments and digital currencies, enabling 24/7 real-time settlements and connectivity to multiple payment networks.
Adopting Modern Core Banking Platforms
Banks are moving towards cloud-native, flexible core banking solutions that enable real-time data analytics, embedded insights, and automation of complex tasks. These platforms improve operational efficiency, client onboarding speed, and customer experience while supporting innovations like Banking-as-a-Service (BaaS).
Expanding Real-Time Payment Capabilities
Investing in scalable infrastructures is crucial to support the increasing demand for real-time payments. This requires integrating with multiple domestic and cross-border real-time payment networks and utilizing automated routing for various payment types.
Enhancing Security and Compliance
Modernization efforts focus on implementing advanced security measures, reducing vulnerabilities inherent in legacy systems, and ensuring regulatory compliance. This includes multi-layer access controls, encryption, AI-powered fraud detection, and real-time risk notifications.
Leveraging APIs and Open Banking
Banks are adopting flexible, API-driven architectures to connect easily with new payment schemes, third-party providers, and fintech innovations. Open banking techniques enable seamless digital experiences and personalized financial products, key for competitiveness.
Adopting Cloud-Native and Platform-as-a-Service (PaaS) Models
Cloud-based platforms allow banks to reduce costs, speed up service deployment, and support global operations. PaaS solutions specifically enable mid-tier banks to modernize infrastructure without costly full system replacements.
Strategic Planning
Developing a well-defined modernization strategy is essential. This strategy should evaluate whether to replicate existing capabilities on new systems, build new features, or leverage commercial software innovations while maintaining robust security and compliance frameworks.
As banks navigate this digital transformation, they face challenges such as maintaining visibility and control over customer interfaces as third-party providers like Apple Pay, Venmo, or Alipay gain prominence. However, the path to a robust payment infrastructure begins with clarity about goals and dependencies.
In Germany, banks are grappling with fragmented legacy systems and outdated processes, but digitalization in payments is on the rise. The use of smartphone payments has tripled between 2021 and 2023. Banks that succeed in this digital transformation will be resilient to regulation, trustworthy, and competitive.
Customers expect transparency and control over their data, and banks must anchor AI governance, opt-in mechanisms, and automated audit trails. The actual legacy issues cannot be eliminated solely from the backend; a parallel renewal of the application architecture is necessary.
A future-proof payment infrastructure is based on four technological principles: modularity and interoperability, AI-driven real-time analysis, data ethics & governance, and automated scaling & flexible rules. Many institutions are investing in their own peer-to-peer offerings like "Pay by Bank" or Instant Payments, but these initiatives often focus solely on frontend processes, leaving back- and middle-office systems untouched.
Federated learning enables cooperative fraud detection without data sharing, and real-time transfers and new payment platforms are gaining significant traction. The key steps in this transformation journey include evaluating infrastructure, understanding data flow, measuring fraud exposure, launching pilot projects, and strengthening internal expertise.
The finance business is leveraging open architectures to integrate wallets, blockchain solutions, or third-party services, aiming to create a more interconnected and customer-centric technology ecosystem in the modernizing payment infrastructures. Banks are also implementing payment hubs, which serve as centralized platforms for real-time settlements and connectivity to multiple payment networks, thereby bridging the gap between legacy core banking systems and new payment types.
