Bank payments infrastructure costs rise as regulation strains legacy systems

Bank payments infrastructure costs are coming under renewed scrutiny as regulatory change and higher customer expectations strain older systems, according to Cian Fernando, chief executive of Aqua Global Solutions. Research cited by Fernando found that 77% of banking leaders say regulatory demands take precedence over customer needs when they make decisions on payment modernisation.

The pressure is coming from several directions. Fernando pointed to ISO 20022, T+1 settlement, anti-money laundering rules, sanctions obligations and Financial Action Task Force requirements as overlapping demands on banks’ payment operations. At the same time, he cited Zendesk research saying 72% of customers want immediate service, raising the standard for fast, clear and lower-cost payments.

Fernando said these pressures should, in principle, support the same goal: richer payment data, quicker settlement and stronger controls. In practice, he argued, many banks are using technology built for slower payment cycles, which forces compliance teams and technology teams into a series of deadline-driven projects.

Why are bank payments infrastructure costs rising?

Fernando attributes the increase to legacy systems that were designed around batch processing, overnight reconciliation and settlement periods measured in days. When a new standard or rule arrives, banks often add tools around existing systems rather than changing the core payment architecture, which can raise operating complexity and consume budget.

Aqua Global Solutions research cited by Fernando found that 60% of banking leaders believe their current infrastructure has difficulty keeping pace with changing standards. The same research found that 67% spend more effort adapting systems for regulatory compliance than improving customer experience.

Regulatory volume has also increased. Fernando cited Thomson Reuters Regulatory Intelligence data showing an average of 200 international financial regulatory changes and announcements a day in 2015 and 2016. By 2022, the figure had reached 61,228 regulatory events for the year, equal to 234 daily alerts, across 1,374 regulators in 190 countries.

How ISO 20022 and T+1 add pressure

ISO 20022 is a financial messaging standard intended to carry richer and more structured payment data. Fernando said many banks met the requirement by using translation tools that convert older message formats into ISO 20022, rather than altering the systems that generate and process the payments.

According to Aqua Global Solutions research cited by Fernando, 65% of institutions still rely on such translation tools after the end of the coexistence period. Fernando said the approach can reduce near-term disruption, but may limit access to the data benefits of ISO 20022 and add further operating cost.

T+1 settlement is another deadline. T+1 shortens the time between a trade and final settlement to one business day, requiring faster processing and reconciliation. Fernando said the change is due to take effect in October 2027, while Aqua Global Solutions research found that 21% of institutions have taken active steps to prepare and 23% have no plans in place.

What banks are being urged to change

Fernando argued that banks do not necessarily need to replace core systems in full. He pointed instead to modular technology, platform-agnostic financial messaging and payment orchestration as ways to apply common data, controls and transaction management across existing systems.

Under that model, payment flows are handled in a single environment while new capabilities are introduced in stages. Fernando said this can help banks respond to standards more quickly, improve straight-through processing and apply regulatory controls more consistently, while reducing the risk of large-scale core replacement.

This story draws on original reporting from Finextra Research.