Legacy systems feed rising fraud threats

Customers of banks and payment providers are increasingly falling victim to scams. In 2023, nearly 36% of all banking customers in the US experienced some form of fraud, with over $10 billion lost, up three times on 2020. Scammers exploit vulnerabilities in outdated systems using phishing, account takeover, and payment diversion techniques.

Legacy infrastructure, designed decades ago, lacks the real-time processing capabilities necessary to detect and mitigate cyber-attacks effectively. 

This outdated technology also stifles innovation, preventing banks from offering the seamless, secure payment experiences that customers now demand. McKinsey, a consultancy firm, found that 70% of banks’ tech budgets are spent on maintaining core systems, limiting their ability to quickly respond to emerging threats and innovate to meet changing customer needs. And this is costing banks more than just maintenance. Banks paid over $10.4 billion in fines for non-compliance in 2020 alone, with a significant portion attributed to inadequate systems. 

Bank customers want faster, more secure payments

Customer preferences for faster payments and better payment experiences are on the rise. In the US, real-time payments are gaining traction. A Federal Reserve and PYMNTS study found that 62% of consumers would opt for instant payments if given the chance. Adoption of real-time payment systems like The Clearing House’s RTP network has also experienced a surge in transactions. The network processed over 82 million payments in the second quarter of 2024, a rise of over 30% year-over-year. Zelle, a peer-to-peer (P2P) payment service widely used in the US, reported $806 billion in payments in 2023, reflecting the increased demand for faster and seamless payments. 

However, many banks still lag due to their reliance on outdated infrastructure. Legacy systems prevent these institutions from meeting customer expectations. As a result, fintech and challenger banks like Chime and Venmo are filling the gap with more modern and user-friendly payment platforms.

Another disadvantage of these systems is the inability to support digital products and services, leading to poor customer experiences such as slow transaction processing and limited payment options. This making it crucial for these institutions to upgrade their systems. Banks that offer better customer experience have the potential to grow three times faster than competitors that don’t. One survey found that over half of the customers said they would switch to a competitor if they experienced an unsatisfactory interaction. 

A modern tech stack enables faster, more secure payments

The advantage of modernization is the ability to integrate AI and ML to improve cybersecurity and fraud prevention. Fraud can be detected in real time, identifying suspicious patterns before fraudulent activities occur. For example, JPMorgan Chase has invested in AI-powered fraud detection systems that monitor transactions in real time to detect anomalies and suspicious patterns.