US banks struggle with payments modernisation amid rising outages
Research from RedCompass Labs has found that two-thirds of US banks are struggling to adapt to rapid changes in the payments industry, leading to increasing incidents of payment system outages globally.
The report, based on a survey of 300 senior payment professionals in the United States, details widespread difficulties in payment modernisation projects, including delays, budget overruns and unmet specifications. Over half (54%) of banks said they had delayed or scaled down a payments project in the past year owing to a lack of expertise, with 43% blaming such setbacks for payment outages.
Mounting outages
Recent months have seen significant disruptions in payment systems across both Europe and the US. In February, the European Central Bank's payment platform was offline for seven hours due to a hardware failure. During the same period, the UK Treasury pressed nine major British banks and building societies about why they had experienced over 800 hours of unplanned outages in the last two years. In April, Citibank, which serves 200 million customers and holds USD $1.6 trillion in assets, was affected by a nationwide payments outage.
With industry developments such as the ISO 20022 migration deadline, the expansion of instant payments, rising cross-border transaction demands, and evolving open banking requirements, banks are experiencing significant pressure to update their systems. However, 22% of respondents reported being unable to keep up with these changes, and the report found that 83% of payments projects experience delays, 87% exceed budgets, and 83% fail to deliver original specifications.
Challenges to modernisation
The obstacles to successful project delivery are clear. A shortage of skilled professionals remains the leading concern, cited by 55% of respondents, followed by regulatory pressure (41%), legacy systems (36%), and budget constraints (35%). The report estimates that each problematic project leads to an average loss of USD $496,953. Delays directly impact other ongoing projects (47%), reduce customer satisfaction (47%), and are seen as damaging to institutional reputations (38%).
The gap between large and small banks is also widening, something nearly all respondents (95%) acknowledged. Complexity and cost were each identified by 61% as the main contributors to this divide, with 58% highlighting a lack of experts.
Role of artificial intelligence
Banks are increasingly looking to artificial intelligence to address their resource and knowledge challenges in payment operations. The report found that three-quarters of bank respondents believe AI could help fill the expertise gap, while 53% already use AI tools in payment operations and a further 29% plan to adopt such technology within the next year.
When asked about support with payments innovation and AI adoption, nearly two-thirds (63%) intend to work with specialist consultancies. Respondents reported negative experiences with some large consultancies, with two-thirds citing disappointment, predominantly due to approaches seen as generic or discussions about AI that do not lead to meaningful results.
Banks with over 50,000 employees demonstrated more caution regarding AI, with around 44% currently using artificial intelligence, a lower proportion than seen in mid-sized banks. Among larger institutions, just over half agreed that AI could address the expertise gap, while approximately 28% were open to the idea in the future.
Industry perspectives
"There are almost no payment modernization programs that go live on schedule, on budget, with the original specification. The entire payments consulting industry exists because of this issue. And it causes big problems. What holds banks back? The same four systemic issues. The first is the rate of change in payments; banks simply cannot keep up. Second is that the gap between what banks need and what vendors offer is wider than ever. Third, smaller banks are disproportionately affected. Small banks and credit unions matter because some people don't want to bank on their phone; a daily or weekly trip to a trusted branch is a key element of social interaction and a safe alternative to the endless scams that come through digital channels. And finally, there is simply a shortage of true payments experts to keep up with the change. While these four problems have not changed, the way to solve them has. AI can write and calculate faster than we can. It doesn't need breaks, vacations, or childcare. It gives our experts more time to focus on what matters most, thinking and solving the most complex problems. It's a new way of working, humans and AI, side by side. The question of our time is: how do we fuse the two? There's no simple answer, but this is where it begins."
The RedCompass Labs report highlights the need for banks to balance technological change, operational resilience, and expertise as they modernise payment systems. The financial, reputational, and operational risks associated with these projects continue to put pressure on institutions and the wider payments infrastructure.
