Two-Thirds of US Banks Struggle to Keep Up with Payments Innovation

Two-thirds (67%) of US banks report struggling to keep pace with rapidly evolving payments systems, primarily due to regulatory pressures, outdated legacy systems, and budget constraints, according to RedCompass Labs.

The ‘On time, on budget and other fairytales — Payments modernization’ report found that while most banks struggle to keep pace with payments modernization, smaller banks face the greatest challenges.

This is reflected in the fact that 26% of banks with 500–2,000 employees report widespread struggles. The report attributes this to these institutions having fewer resources while facing the same expectations from customers and regulators.

In comparison, larger banks with over 50,000 employees are faring better as 24% say they are leading payments innovation, while 34% report they are keeping up "just fine.”

The report notes that larger banks’ size and scale enable them to experiment with new infrastructures, adopt emerging technologies, and often set the pace for industry-wide change.

While larger banks can leverage their size and scale to experiment with new technologies, all banks face hurdles. In particular, regulatory pressures remain the top barrier to payments innovation, cited by 41% of US banks.

The report highlights that banks remain heavily engaged with ongoing regulatory mandates and compliance deadlines, such as the global migration to ISO 20022, with one requirement often following immediately after another.

Meanwhile, 36% of banks cited legacy systems as a barrier, with decades-old, heavily customized infrastructure making modernization and adoption of instant payments challenging.

According to the report, in regions like Europe, regulatory mandates have driven progress, while the absence of similar requirements in the US has slowed adoption.

Budget constraints are also cited by 35% of banks because unlike revenue-generating areas such as lending or investment banking, payments are often seen as a cost center, making heavy investment in modernization challenging.

But banks also face additional hurdles, including internal delays (33%), the rapid pace of change (32%) and a lack of skilled personnel (29%) as deep expertise is hard to find. Other barriers include vendor misalignment (28%) and limited leadership support (19%).