Best practices for building next generation payments infrastructure

Insights

• Banking modernization is rarely simple.
• Banks face decisions on building, buying, or repurposing systems.
• There is increasing pressure for real-time and personalized services.
• Legacy payment systems are expensive to maintain.
• Off-the-shelf products can reduce the need for customization.
• Custom solutions may be required for specific customer needs.
• For banks opting to build their way to modernization, a few best practices include:
  1. Make a robust business case
  2. Form a cross-functional team
  3. Start the build
  4. Engage clients
  5. Avoid failure modes

Modernization is rarely straightforward. For banks, the challenge lies not just in adapting to new technologies but also deciding how to modernize their payment systems. Should they build bespoke solutions, purchase readymade platforms, or repurpose existing infrastructure? Each path has its advantages and pitfalls, but none provides a universal solution. The absence of a clear-cut approach underscores the complexity of delivering a payments infrastructure that is both modern and effective.

Banks face mounting pressure as customers increasingly demand real-time, personalized services. The fragmentation of customer relationships and products has paved the way for fintechs and technology giants to redefine financial services, delivering integrated experiences that challenge traditional banking models. This shift threatens banks, which have lost revenue to fintechs, exposing them to competitive vulnerabilities.

The global adoption of instant payments is forcing banks to redesign their payment processes, data and infrastructure. Electronic payments mean businesses can receive payments and access funds swiftly, boosting cash flows. However, legacy infrastructure inhibits several banks from offering new products and services to customers and rolling out real-time payment systems, putting some banks at a competitive disadvantage when compared to modern fintechs. Maintaining legacy payment infrastructure is expensive. Financial institutions are expected to spend $72 billion on legacy payment technology in 2028, up from $46 billion in 2022. In addition, technology debt limits their ability to automate backend processes, reducing operational efficiency and harming customer experience.

Yet the outlook is not entirely bleak. Banks are using their customer data and building robust transaction-processing capabilities to enhance customer experiences and rebuild trust. Technologies such as generative AI are enabling analysis of data in real-time. Banks are actively seeking differentiation, aiming to offer consumer-focused experiences while streamlining operations through automation and digitization. Whether banks can harness these advantages effectively remains a question of strategy and execution.

Payments modernization: Banks confront a complex array of choices

As banks embark on modernization efforts, they face a strategic decision: Whether to build, buy, or reuse existing systems. Several factors need to be considered: Resource availability, time-to-market, business requirements, and capability for continuous monitoring and optimization of the infrastructure and application programming interfaces (APIs) for seamless operations.

Buying commercial off-the-shelf (COTS) products is recommended to address functionality requirements with minimal customization — be it core, payment gateways or downstream functionality. Typically, banks buy COTS products when ongoing support and patches are available, and the institution can afford to make a trade-off between differentiation and specification requirements. Likewise, institutions can avoid upfront development costs if existing tools can be reused or repurposed. Costs and support for legacy platforms are key considerations for financial institutions to reuse components.

In cases where customized front-end development is needed for client-facing solutions to address functionality or user experience requirements, building technology components might be the only alternative. Building a new solution presents an opportunity to retire monolithic platforms and create a digital bridge to future-proof systems by facilitating the upgrade of diverse elements. A bespoke solution offers flexibility to incorporate services such as APIs, real-time payments, and reporting. Further, it allows institutions to rationalize development costs by reusing components.

Ultimately, the choice hinges on whether banks can create differentiated solutions using their current offerings. Their ability to innovate and stand out in a crowded market will determine the success of their modernization efforts.

Navigating an in-house build decision

For banks opting to build their way to modernization, the path is both ambitious and intricate. Success hinges on careful planning, assembling the right talent, and focusing on differentiation. In our experience, here are a few best practices banks can follow when choosing to build:

1. Make a robust business case: The foundation of any build initiative lies in clarity of vision. Executives must articulate a shared vision — whether through objectives or key results (OKRs) — and ensure alignment across all levels, from analysts to leadership. Understanding client needs through direct engagement is critical, as is defining how the bank intends to stand out — be it through modern user experiences, specialized offerings, competitive pricing, or differentiated services. A robust business case must underpin these aspirations.
2. Form a cross-functional team: Assembling the team is pivotal. Success hinges on cross-functional collaboration, with key roles spanning technology experts aligned to the new business line, seasoned product owners, UX specialists, and a mix of external fintech hires alongside internal talent familiar with legacy systems. Legal, compliance, and audit teams must be involved early to avoid bottlenecks later. Sales and marketing should be embedded from day one to ensure client-centricity. Rarely can banks rely solely on internal resources; strategic systems integration (SI) partners often play a crucial role in execution. However, hiring top talent takes time — momentum must be built even as key roles are filled gradually.
3. Start the build: A well-defined roadmap aligned with the business case is essential. Incremental delivery of value through iterative launches can accelerate market entry while mitigating risks. Strong governance and reporting mechanisms are nonnegotiable, as is ramping up SI resources — a process that often takes longer than anticipated. Engaging clients throughout the build ensures alignment with market needs.
4. Engage clients: Client involvement is often overlooked in builds. Relying solely on sales teams as proxies for feedback risks missing critical insights. Banks should involve a subset of friendly clients early, codeveloping solutions while securing pilot commitments. Nonclient or independent panels can provide unbiased testing feedback on sensitive matters. Leaders must consistently ask whether solutions have been validated by clients or the market.
5. Avoid failure modes: Differentiation is key — without it, breaking through is unlikely. Misaligned expectations around timelines can derail projects; builds often take six to 12 months to launch, and years to achieve profitability. Bureaucracy can stifle progress unless balanced with transparency and autonomy. Cultural inertia is another hazard; bringing in entrepreneurial talent with startup experience can help overcome legacy mindsets. While leveraging subject matter experts from within the bank could be necessary, this must be managed delicately to avoid conflicts with existing priorities.

Ultimately, building requires banks to strike a delicate balance between innovation and operational pragmatism while navigating hiring challenges and cultural shifts. For those willing to embrace this complexity, the rewards could redefine their competitive edge in an increasingly digital financial landscape.