Over the years, the cloud has emerged as a mainstream technology for the banking sector. Despite its uptake, banks have taken a measured approach to cloud adoption. Citing security and regulatory concerns, most banks are in the early stages of cloud maturity.
The COVID-19 pandemic created a new urgency for cloud solutions. With continued banking disruption, the traditional core architecture is no longer enough to deliver new products and services at the required pace. Most banks are aware of the importance of core banking systems but have no defined strategy.
The question that most bank leaders have to address is can next-gen cloud-based core banking systems replace traditional core banking systems?
Banking innovation roadblocks
Legacy technology is a major stumbling block for banking innovation. The monoliths are cumbersome and running on obsolete technology with little to no updates. Legacy systems form the core of banking operations and have stood their ground through the technological storm. But these systems weren’t designed for the fast-moving digital age.
The rigid organizational structure and siloed nature of working is also a barrier to innovation in banking. While we see a rise in cloud adoption, the shift means more than just migrating the IT assets. The complete adoption of cloud calls for an agile, forward-thinking mindset. The culture of innovation requires a change in attitude and adopting a customer-centric approach. Banks are typically risk-averse, especially when it comes to core replacement. The process is expensive, time-consuming, and even a tiny misstep could lead to service disruption and attract regulatory scrutiny.
Adopting innovation accelerants
Next-gen cloud-based core banking systems address evolving needs of the banking market. According to Mckinsey, the technology could significantly reduce time to deliver new functionality such as address change from a mobile application or peer-to-peer payments. Cost reduction, scalability, and efficiency are driving the cloud market.
Operating in the cloud offers banks the key differentiating factor in a competitive landscape. Some of the key benefits include:
- Reduce time to market new products – Cloud environment provides agile and DevOps environments that support the rapid development of products, services, or feature enhancements being brought to the market fast.
- Agility to innovate – Capitalize on market opportunities by leveraging emerging technologies such as artificial intelligence, machine learning, blockchain, etc.
- Reduce overall operating costs – Banks can reduce their overheads by not owning every IT-related asset. Rather these can be purchased as services from various cloud providers and eliminate the need for on-premise servers.
- Enterprise synchronization – Cloud core banking unifies banking functions, standardize applications and processes. The synchronized systems allow for easy alignment of technology and business operations. Several service providers help banks bring together their operations and functions with an integrated platform. For instance, Temenos has been the number one core banking solution in the world, supporting more than 3000+ customers. They are providing cloud based platforms with cloud-native microservices architecture approach and tools. The integrated platform-led core banking solution is cloud-agnostic, API-led, and artificial intelligence-enabled. Temenos cloud based solutions are highly secured and compliant, designed with robust practices, policies and procedures for assuring comprehensive customer protection.
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The conventional thinking for moving Core banking on cloud
While legacy core banking systems are known to be non-agile, rigid, scale-constrained, and working in siloes. Most banks still rely on it due to challenges and conventional thinking in adopting cloud-led core banking such as:
- Moving too fast – The banking application landscape is one of the most complex software. Thus, upgrading legacy systems is difficult and expensive. Moving to the cloud too fast also slows down the pace of IT modernization.
- Complete reliance on the cloud – Traditional banks are still hesitant to abandon a functioning system and rely heavily on the cloud. With stringent regulatory and compliance norms, the interaction and dependency on third-party is cause for data security concerns. Moreover, handing over control of critical business applications to a third-party service provider is a risk that most banks do not wish to take.
- Evolving relationship between data, regulation, and innovation – Over the years, the regulations have increased focus around consumer data safety. From GDPR to open banking regulations, banks’ overheads have increased due to changing regulations and restricted their ability to innovate. Balancing regulations and innovation is an uphill task. But banks can work with regulators and cloud providers to provide a transparent process that would placate the involved parties.
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The COVID-19 pandemic highlighted the need for more user-centric digital solutions for employees and consumers. As the world came to a halt, cloud-based services were the need of the hour for businesses to sustain themselves. With cloud-led core banking systems banks can accelerate and scale their next technology transformation, future-proof the foundation against further crises.
While core banking system is not a priority for most banks, this is the right time for banks to shift from a reactive phase to a proactive phase. Temenos cloud based core banking solution is the right choice for banks to #AccelerateNext. Maveric as a certified Temenos partner, offers end-to-end analysis, implementation, upgrade and support services. With our proven product mastery, our solution specialists guide banks to extract maximum value from their Temenos investments. Get your bank future ready with cloud based core banking solutions.