This article was co-authored by Ram Devanarayanan, head of business consulting in Europe & UK at Finacle.
Customer expectations have soared since the integration of cloud technology into financial services, as traditional banks with bulky legacy technology struggle to provide insightful, personalised services to consumers. Neobanks are surpassing Tier One banks
in their speed, efficiency, and accessible interfaces that boost user experience and engage the consumer.
Incumbent banks are struggling to transform their legacy systems to accommodate the agility and flexibility that users demand. When looking for solutions, banks are turning to cloud-first strategies to transform their technology infrastructure. A cloud core
banking engine sets stronger data-mining capabilities and orchestrates a seamless customer journey.
Cloud-based core banking is a gamechanger that transforms back-end systems to process transactions and banking operations within the cloud-native architecture, forming an integrated ecosystem which automates and modernises IT operations for payments and
banking systems.
While banks have been embarking on their digital journey, the route to the cloud is winding and varies for every institution. While many financial organisations embrace the full transition, there are benefits to a stepwise approach to transformation, and
whether banks operate on the public or private cloud. Despite advantages to a piecemeal approach,
research from Infosys indicates that banks must successfully migrate a mass of 60% of their infrastructure to the cloud to gain value from it.
The research furthers that exceptional cloud performance can boost company profits to $414 billion, with businesses that have the highest performing cloud platforms seeing significant growth in their profits.
Source: Infosys Cloud Radar 2021
By forming relationships with third-party platforms and hyper-scalers, incumbents are upgrading to the cloud to gain protections against financial crime, while also enhancing their services. Cloud can harness data to produce innovative solutions in artificial
intelligence (AI) and machine learning (ML) that can enable banks to keep up with the new pace of change and make transactional banking frictionless.
What benefits and challenges do FIs face in adopting cloud-based core banking?
Traditional financial organisations face a number of challenges when shifting to the cloud. A large obstacle to overcome is the shortage of knowledge of people who are intimate with the existing system of the Tier One bank; they can determine what needs
to be carried across into the cloud and what need to remain within the system to be developed. This group of people is often lacking in cloud migration teams for incumbent banks, making it difficult to prioritise what is needed within the transformation
to the cloud.
Additionally, banks face challenges with the data thread and how data is being migrated to the cloud. While the cloud can provide ample cost benefits, efficiency, and automation capabilities that will enhance banking and payments services, the migration
of valuable data is difficult to navigate due to security concerns and risks.
To overcome these obstacles banks must embrace the spirit of coexistence, to maintain the integration between on-premise infrastructure and cloud technology in the migration process. A significant amount of time and effort must be dedicated to planning and
maintaining this spirit of coexistence to ensure harmony within a banks’ financial ecosystem.
In transferring to the cloud, banks improve on their resilience and enhance their performance at a lower total cost of ownership. Cloud-native systems provide security by design, delivering on consumer expectations of strong security protocols, cybersecurity,
and data protection. The technology ensures overall risk reduction and embedded capacity and agility within the cloud core banking engine.
As the cloud continues to grow and develop in importance, so will the banking technology and operational infrastructure. The ultimate goal will be to provide a standard for security capabilities, models, and resources, so that each organisation does not
have to define their specific needs on the onset to migration. These capabilities are on the horizon for cloud technology to make operations easier and seamless for big banks with clunky infrastructure.
How can banks achieve a successful cloud migration?
There is no silver bullet for cloud migration, and a ‘big bang’, all-in-one shift to the cloud is not always feasible or possible. However, some incumbent banks are adopting a stepwise transformation model onto the cloud where migration occurs in phases. This
staggered approach allows the replacement of core platforms in a measured, methodical strategy that reduces risks within the migration by continuously getting feedback and correcting errors to rectify before the next phase.
The stepwise strategy offers flexibility and business agility for banks. Institutions can prioritise their business needs when partially moving to the cloud and can respond to consumer demands faster, while giving attention toward be the next shift. Often,
bigger banks move to the private cloud before shifting to the public cloud to ensure they are comfortable in their journeys.
Large banks are witnessing the benefits of cloud collaboration with multiple providers through the hybrid cloud model by using specialised services for their specific business requirements. In shifting their core banking operations to the cloud and employing
the services of third-party scalers, banks have the opportunity to enhance strategic manoeuvrability, improve client engagement, and optimise services.
Ecosystem collaboration is a core aspect of what can be achieved on the cloud. In the era of digital transformation, banks have moved away from creating their own products, selling, and distributing in their own channels, toward collaborating within an ecosystem
and innovating at scale. Mindful and focused innovation can be better concentrated and done most effectively on cloud-native platforms.
How will the cloud transform financial services?
The cloud has already transformed financial services by accelerating innovation, accessibility, efficiency, and deliverance of products and services; it will continue to transform the industry by allowing banks to play the ecosystem and widen the range of
financial services to usage in other sectors.
With the influx of resilience, security, high performance, effective operational systems, and ability to harness data, cloud core banking is the next step for financial giants. On the cloud, banks are better able to keep up with regulatory demands and changes
as the sector develops.
The cloud will enable regulatory pan-European open banking initiatives using APIs and push open banking frameworks across retail and corporate sectors. Cloud platforms gain profit and efficiency by leveraging the benefits of embedding banking and Software-as-a-Service
(SaaS) offerings within payments platforms.
As experts in the sector ruminate the future, cloud is always in their vision – with more and more financial institutions adopting cloud core banking and multi-cloud solutions moving forward. Cloud providers are making financial services frictionless and
enabling widespread interoperability.