How AI Is Forcing Banks to Overhaul Legacy Payment Systems

Leonardo J. Collado, senior vice president and general manager of Pismo, a Visa solution, has highlighted the growing tension between legacy banking systems and the demands of modern payments innovation. During a discussion in the “What’s Next in Payments” series, Collado emphasized that while legacy infrastructure has supported the financial industry’s digital transition, It’s increasingly inadequate for handling real-time payments, AI-driven decision-making, and evolving customer expectations. Legacy systems, designed for batch processing and slower settlement environments, are struggling to keep pace with the speed and personalization required by today’s market. Collado noted that AI has “reset the bar for everyone,” exposing structural limitations in older technologies. “You can’t just place new tech on old stack,” he said, underscoring the need for infrastructure capable of supporting adaptive analytics, rapid decision-making, and emerging settlement frameworks like blockchain and stablecoins. The financial sector’s reliance on outdated systems is also creating economic pressures. Collado cited that roughly 70% of IT budgets are often allocated to maintaining legacy systems, leaving institutions with limited resources to develop new products or customer-facing capabilities. This imbalance has transformed infrastructure modernization from a technical concern into a strategic imperative. “Modernizing infrastructure has gone from a technical discussion that only the technical people had to a C-level discussion,” he said. “You’re now talking about how to deliver value, how to deliver unique experiences.” Collado argued that stability alone no longer guarantees customer loyalty. “What customers value today is speed, simplicity, convenience, intelligence,” he said, framing operational complexity as a “tax” that incumbents must address. Many established banking systems have accumulated layers of integrations, patches, and workarounds over decades, making modernization increasingly difficult. While these systems remain reliable in many environments, they were not engineered for the demands of always-on digital commerce or AI-driven engagement. Pismo, which Visa acquired in 2024, positions itself as a solution for incremental modernization rather than disruptive overhauls. Collado emphasized that large-scale “big bang” migrations carry operational risks and are often unaffordable for institutions. Instead, Pismo advocates a phased approach, allowing organizations to modernize service by service while maintaining continuity. Examples include Thailand-based FinTech T2P, which migrated 320,000 customer accounts to a cloud-native platform in three months, and Denmark’s Lunar Bank, which used Pismo infrastructure to support over one million users across Nordic markets. However, Collado stressed that modernization is not solely a technological challenge. “I don’t think you start with infrastructure,” he said. “I think you start with your customer, your consumer, what value and the value they’re trying to drive.” This customer-centric approach, he argued, will determine which institutions adapt most effectively as payments systems evolve toward real-time commerce and complex digital ecosystems. The conversation comes as Visa continues to expand Pismo’s geographic footprint. Since the acquisition, Pismo has grown from operations in five countries to over 20, signing agreements with several leading global banks. The platform has become a “strategic growth platform within Visa,” Collado said, leveraging its cloud-native architecture to support innovations such as agentic commerce, real-time payments, and digital assets. Collado’s remarks reflect broader industry debates about the future of banking infrastructure. While large banks and FinTechs alike face pressure to modernize, the path forward remains complex. For many institutions, the challenge lies in balancing the costs of transformation with the need to meet rising customer expectations. As AI and real-time commerce reshape the financial landscape, the ability to adapt will likely define competitive success. The discussion also highlights the evolving role of payments providers like Visa. By acquiring and integrating companies such as Pismo, Visa aims to position itself at the forefront of the next phase of payments innovation. Collado’s appointment as Pismo’s general manager, effective April 1, 2026, signals the company’s commitment to this strategy. His 25 years of payments industry experience, particularly in Latin America and the Caribbean, are seen as critical to driving Pismo’s global growth. As the industry grapples with these challenges, one thing is clear: the era of “good enough” legacy systems is ending. Whether institutions can transition smoothly to newer, more agile infrastructures will depend on their ability to prioritize both technological innovation and customer-centric strategies. Quoted text “We are thrilled to welcome Leo to the Pismo team — his deep payments expertise and firsthand experience scaling platform capabilities across Latin America and beyond make him the ideal leader to take Pismo into its next chapter of global growth,” said Kathleen Pierce-Gilmore, senior vice president, issuer solutions at Visa. Quoted text “Modernization isn’t necessarily a tech upgrade; it’s a strategic choice,” Collado told PYMNTS.