Payment modernisation: now a strategic imperative for financial institutions

As Australia moves deeper into a real-time economy, payment modernisation has become a strategic imperative driven by regulatory reform, ecosystem innovation and rising customer expectations.

Australians now make over 500 million payments with mobile wallets each month, valued at over $20 billion. In the year to June 2024, the Reserve Bank of Australia (RBA) reported 137.2 million transactions via the New Payments Platform (NPP), while PayID registrations exceeded 25 million by 2025. These figures highlight how quickly digital payments are now embedded in daily life — and why institutions must accelerate transformation.

Banks face pressure on multiple fronts: fast-moving reforms, tech giants pushing crypto and embedded payment products, and growing demand for seamless, secure and personalised services. To keep pace and ensure delivery of real-time services, financial institutions must evolve systems that are not only fast but secure, interoperable, intelligent and resilient. This requires a focus on four core areas: system integration, infrastructure modernisation, AI and data and regulatory readiness.

Driving interoperability across systems and providers

In an increasingly connected economy, interoperability is essential. It underpins an institution’s ability to move money across markets, deliver consistent services, and connect services with fintechs, regulators and global partners. Without it, organisations face siloed operations, reduced agility, and barriers to growth in a real-time digital economy.

Building a future-ready payments environment starts with modernising the IT estate — aligning payments capabilities with enterprise architecture, data governance, cybersecurity frameworks, and compliance protocols. Implementing industry standards such as ISO 20022 is essential not only for compliance but also to enable faster, cross-border settlements and reduce fraud vulnerabilities.

However, greater connectivity also introduces new risks. Security must be embedded at every layer of integration. Robust identity controls, real-time monitoring, and tokenisation strategies are a must. Biometric verification and blockchain-based validation can also help secure real-time transactions across open ecosystems.

Modernising legacy infrastructure and core systems

Many financial institutions are still reliant on outdated systems that were never designed for the scale and speed of modern digital payments. These legacy environments create bottlenecks, drive up costs and expose institutions to operational and cyber risks.

A modernisation strategy must be both strategic and staged. A phased approach — that combines microservices-based architecture, migration of legacy workloads and upgraded application interfaces — enables faster processing, system flexibility and improved customer experience. It also reduces technical debt, enhances resilience and supports scalable integration as quickly as overnight.

Leveraging AI and big data to enhance personalisation and security

The shift to real-time payments is also unlocking new value in how financial institutions use data — presenting a significant opportunity to enhance customer experiences and enhance security.

AI-powered analytics can help banks move from reactive to proactive service models. With the ability to analyse patterns in consumer behaviour, AI can predict future financial needs, optimise user journeys and improve financial wellbeing. For instance, banks can use AI to flag unusual increases in utility bills and offer personalised advice or alternative providers in real time.

Equally critical is AI’s role in enhancing security. Financial institutions are increasingly leveraging AI for fraud prevention and customer support, with 74% of financial services leaders identifying fraud prevention as the top use case for AI. AI can detect synthetic identity fraud — now one of the most common and complex threats — while accelerating recovery from cyberattacks.

To build and maintain trust, institutions must ensure that AI applications are secure, transparent and compliant with evolving ethical and privacy standards. This includes offering opt-in mechanisms, being transparent with consumers about how data is used, and aligning with emerging regulatory frameworks such as the EU AI Act and Australia’s evolving privacy standards.

Navigating the patchwork of local privacy and data regulations

Naturally, modern payment systems demand stronger protection around personal, behavioural and biometric data. With digital identity initiatives accelerating, compliance is becoming more complex — especially where systems intersect with cross-border platforms and third-party providers.

Australia’s regulatory framework is also changing. The Privacy and Other Legislation Amendment Act 2024 is driving significant reform to bring local regulations in line with international standards such as the GDPR. These proposals include changes to strengthen consent requirements, broaden the definition of personal information, and introduce stricter obligations around data collection, usage and disclosure.

Beyond lawful requirements, institutions must also prepare for rising expectations around digital identity frameworks, biometric verification protocols and AI governance — all of which play a larger role in financial services in the future. Transparency, accountability and security will be core to future service delivery and to maintaining customer trust.

A strategic path forward

Payment modernisation is a transformation that intersects with customer trust, competitive strategy and long-term resilience. For institutions to succeed in a real-time economy, transformation must be broad, integrated and future-proof.

This means building AI-ready infrastructure, embedding interoperability, replacing outdated systems and aligning with evolving data standards. Done right, modernisation will unlock personalised services, real-time liquidity and intelligent fraud detection — defining the next era of financial services leadership.

Image credit: iStock.com/mihailomilovanovic