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Understanding the True Cost of Legacy Systems for Payments

October 22, 2021


True cost of employing legacy systems for payments

Modernization and digital transformation require large upfront investments. But what is the cost of relying on outdated legacy systems for payments? Let’s find out.

The fast pace of innovation and development today means that nearly every company is operating with software that is at least partially outdated. This is known as technical debt and it doesn’t need to be a problem in the short term. However, payments platforms that let this debt accrue are likely to see a detrimental effect on both resources and customer satisfaction.

Many legacy systems cannot support modern innovations like the cloud, creating tension between existing technology and new market developments. A recent survey by VMWare and MIT Technology Review found that 62% of IT leaders attribute integrating legacy technology as their biggest challenge in multi-cloud deployment.

While upfront investments for modernization can be substantial, it’s imperative to consider the true overall costs of maintaining legacy systems. Though implementing a new tech stack can be expensive, companies must consider the costs required to remain competitive — and the costs and consequences of not doing so in a rapidly evolving payments space.

Legacy Tech is More Expensive Than it Seems

Companies often focus on maximizing investment in technology, leading many to cling to outdated technologies. It can seem more affordable to stick with outdated technologies in the short term, but it usually costs more in the long run.

Companies are forced to spend time and money on troubleshooting outdated technology, forcing IT teams to invest more in maintenance or reallocate resources away from innovation. An ACT-IAC report found that 71% of government agency IT spending ($37 billion) goes towards maintaining legacy systems, as opposed to investing in new and improved applications. This restricts the business’ ability to stay competitive in the market.

If a company can spend on both maintenance and investment, the legacy system can still cause problems — retaining older technology and requiring that new products integrate with it, undermines the value of these newer programs.

VMWare and MIT Technology Review found that 57% of IT leaders experienced trouble with multi-cloud deployment, directly due to existing technical challenges. This results in less value for money, as companies can’t take full advantage of the new technology they’re paying for.

The Financial Breakdown of Legacy Tech

Payments companies leaning too heavily on legacy tech face a drain of time and resources but also significant security concerns. Consider the following consequences of waiting to modernize:

Expensive Upkeep & Management

Older technology is more likely to experience bugs and glitches. Legacy systems require comprehensive maintenance, a greater allocation of resources, and or specialized IT support.

Performance & Security Issues

Modern technology relies on an incredible amount of data, but legacy technology was not designed for this purpose. Without the ability to leverage machine learning and artificial intelligence, analysis becomes time-intensive and expensive.

Legacy systems and infrastructure come with inherent vulnerabilities and security issues. These systems will also lack the newer safety protocols built into modern systems. Additionally, patching security flaws will take longer and cost more — due to the specialist nature of the job.

Challenges with Licensing and Regulations

Recent privacy laws, such as GDPR in Europe and CCPA in California, have placed higher burdens on companies to protect their consumer data. Older systems — often not configured around newer regulatory requirements — will take longer and involve more to achieve compliance. Systems will often rely on manual data security rather than automation.

A similar issue occurs with product licensing. As developers release newer versions of their solutions, they often only ensure compatibility with newer systems, as this is the most cost-effective option. For payments platforms that still require older programs, they may need to pay for the privilege of receiving a specially-designed compatible version just to maintain the use of the software.

Digging Into the Hidden Costs

It’s critical to understand that legacy systems can wreak havoc on the bottom line. Payments companies must remember that end-users expect a seamless digital experience, so any poor performance could erode loyalty and ultimately a customer’s lifetime value. With a legacy system, the likelihood of slower loading times and even total website downtime increases — which means that the demands of modern platforms may be too great for legacy tech to sustain.

It’s not just customers who may be turned off but also prospective business partners. In a competitive marketplace, third-party solution providers rely on modern technology infrastructures to support API integrations. Without the appropriate infrastructure, payments organizations can’t take advantage of these partnership opportunities, which will ultimately result in hindered growth.

Modernized Thinking About Costs

While migrating to the cloud and modernizing tech stacks can require a large upfront investment, organizations must consider the long-term costs, too. Though legacy systems may seem like the more affordable option today, the long-term costs will likely be substantial.

With a modern cloud network, payments companies can cut their maintenance costs and immediately start taking full advantage of newer third-party solutions in the marketplace. As new developments are launched, they can be easily integrated into the system and this will allow the payments platform to immediately respond to shifting consumer behaviors. Not only will this make way for more efficient use of existing data and resources, but it will likely bring in more revenue — adding a double benefit to the bottom line.

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