Many banks are starting to ask themselves, “is ‘cloud-native’ banking technology really transforming financial services, or is it just clever rebranding?”
A new generation of financial services vendors is promising a revolution in cloud-native technology. In reality, the majority are just moving old systems to new environments, providing a mere shadow of the true capabilities offered by truly cloud-native solutions.
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As a result, not all ‘cloud-native’ banking systems are created equal. While some fully embrace and utilise the real-time data and flexibility that being born in the cloud delivers, there are several players who are rebranding their old legacy systems by giving them a digital facelift with little real benefit. In short, they are cloud-washing.
Cloud-washing can have a seriously detrimental effect on banks. Last year, research revealed that while 60% of UK banks have migrated core banking systems (CBS) to the cloud, more than half (51%) failed to meet their goals. Even after cloud adoption, 57% struggled to implement changes or launch products as quickly as expected, and 41% still lacked access to essential data. This means banks with sub-par core banking will struggle to deliver personalised products and meet customer needs.
So, the challenge for banks is: how do I spot a cloud-washer?
Hefty setup fees and lengthy deployment times
If you have a cloud CBS, stop and think back to when you implemented it. How much did you pay for system setup? And how long was your deployment and onboarding phase?
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By GlobalDataA clear sign of cloud-washing is when significant cost is attached to CBS setup – and any further customisations – because these are difficult, lengthy processes in a legacy CBS. Deployment times are also inflated because these “cloud” systems are not plug-and-play and instead take time to integrate into existing tech infrastructure.
An API-driven cloud-native model will avoid these hefty upfront costs, as there is no need for banks to pay excessive amounts for hardware and software licenses. The newest generation of cloud-native systems even allow for a service-based payment model, similar to Salesforce, during the selection phase. This model will further reduce setup costs and encourage experimentation and innovation, which offers a major benefit for smaller banks.
A lack of “self-service”
A hallmark of a legacy CBS is a lack of flexibility. Innovation often stalls because banks are locked into vendor-imposed frameworks with little room for customisation. This inflexibility can slow product evolution to a crawl, making it near impossible to launch new offerings at speed. As customer needs shift, banks find themselves unable to keep up. This isn’t because banks lack ideas, but because their CBS simply can’t adapt.
In contrast, a cloud-native CBS delivers the flexibility to design and launch products at the pace of customer demand. Unlike monolithic legacy systems, cloud-native platforms allow you to scale specific capabilities up and down as needed. This means improved self-service, seamless product updates, and greater reassurance that you have a true partner in transformation – not a roadblock.
Mandatory downtime for service upgrades
Upgrading a legacy cloud CBS is a time-consuming process, necessitating system downtime. While legacy mainframes can be updated relatively easily, when these are migrated to the cloud, the increased complexity extends update cycle times significantly.
If your CBS is truly cloud-native, it will be powered by APIs, effectively making the system live service. This enables your business to stay online, even as your core systems are updated in the background.
Lack of open APIs and event-based architecture
Legacy architectures are largely monolithic and unresponsive, even when transposed into the cloud. Once presets are configured, it is difficult and time-consuming to make alterations and upgrades. Additionally, accessing real-time data is almost impossible in these systems. This means that banks are unable to even understand what their customers want, let alone develop and release products to meet these needs.
Legacy CBS also offer no ability for banks to implement an event-based architecture, which would allow past transaction data to inform projections and launch new products based on emerging trends.
Truly cloud-native CBS also give access to a rich pool of real-time customer data. This data – coupled with the in-built agility of cloud-native platforms – can be used to adapt product offerings at speed and to respond directly to customer needs that are informed by transaction data.
Inability to scale quickly and affordably
Cloud-washed legacy systems are rigid and carry high maintenance costs. These systems penalise rapid growth as CBS providers have to press pause to catch up to growing demand. In many cases, this new service level also requires the agreement of new, increased contracts, which bring new costs and time delays into the upgraded system’s deployment.
The ability to scale goes beyond CBS integrations. For banks to be successful, scale is everything. Clinging to a legacy core will only worsen performance issues. This challenge goes beyond the CBS and traditional tech at other stages of the banking process, such as for cards, can also complicate scaling as banks process increasing numbers of transactions.
The true cloud-native difference
A CBS that is born in the cloud is profoundly different to a legacy system shunted to the cloud as part of a marketing exercise. It’s no longer acceptable to have to wait over four months for a CBS set-up – instead use these signs to make an informed choice when selecting your core banking system.
Banks must challenge providers to ensure their core banking infrastructure is truly cloud-native and leverages core cloud technologies. A cloud-native core is fully scalable, gives users access to a wealth of event-driven data to power informed product customisation, and can plug-and-play with existing systems they need to innovate at pace and deliver first-class products.
Nelson Wootton is CEO and co-founder, SaaScada
