Banks face growing pressure to digitally transform core banking functions. Rising customer demands, legacy system limitations, security concerns, and market competition are driving change. Cloud solutions enable banks to innovate faster and meet modern challenges. This blog covers why banks must upgrade core platforms and how cloud migration gets them there.
The Pressing Challenges With Legacy Core Banking Systems
Let’s start by examining the current landscape. Core banking systems process daily transactions, payments, loans, record-keeping and more. Most banks rely on legacy platforms built decades ago using older technologies like COBOL.
These outdated systems severely restrict banks in today’s mobile world. Customers expect instant, seamless services across channels. Fintech disruptors grab market share with agile innovation. Can banks keep pace? Here we outline the mounting obstacles legacy systems create across key areas:
Customer Experience and Service
- Batch processing delays transactions 24+ hours
- Downtime during upgrades frustrates digital users
- Siloes frustrate clients with disjointed experiences
Customers today demand always-available banking across mobile, web, and apps. 40 year old mainframes just can’t compete.
Products and Channels
- Painful to integrate digital and open banking capabilities
- Biometric security popular elsewhere not supported
- Impedes creation of lifestyle banking offerings
Banks lose customers to more convenient financial apps and wallets daily. Core modernization is required just to remain viable long term.
Security
- Increased vulnerability to cyber attacks and fraud
- Inability to detect threats in real time
- Lack of skilled staff to manage cryptic legacy code
The sheer complexity of legacy landscapes pose too great a risk now. Failure to upgrade drops the ball on due responsibility.
Costs and Efficiency
- Up to $3 million per year to operate legacy systems
- Significant waste maintaining unused capabilities
- Reliance on rare and expensive skills to run
The hard opportunity cost also grows yearly as funding gets consumed by “keeping lights on” instead of innovation.
Without core modernization, most banks cannot continue serving customers to their expectations. Nor keep pace with regulation and security requirements. Cloud migration provides solutions.
Why Cloud Capabilities Are Essential for Core Modernization
Transitioning core platforms is complex. More banks leverage cloud computing to transform legacy systems with less disruption and better outcomes.
What is Cloud Computing?
Cloud computing utilizes online servers accessed over the internet to store data and applications. Top cloud vendors own and manage the infrastructure for clients. Banks then purchase flexible compute resources on-demand monthly, like a utility.
Key Benefits of the Cloud
Cloud-based systems yield advantages not achievable otherwise:
Cost Efficiency
- Converts high fixed costs into variable cost model
- Streamlines operations with automation
Running workloads on cloud infrastructure slashes data center waste by up to 65%. Staffredirects time from maintenance fire drills to customer improvements.
Security
- Advanced threat detection not affordable alone
- Physical protection levels exceed bank capabilities
Vendors continually upgrade perimeter defense, like biometric checks. And isolate client data and apps logically to limit breach impact radius.
Scalability
- Auto-scaling to instantly meet surges in demand
- Pay only for additional resources spun up
When online banking traffic triples during outages, cloud systems automatically launch backup capacity as needed. Banks don’t pay a cent more later. Try that with mainframes.
Business Agility
- Faster experimentation with innovative capabilities
- Quickly evolve offerings to customer needs
With cloud-native development, banks can build mobile features in weeks rather than years. New revenue opportunities become realistic again.
Now we walk through prudent steps for banks to migrate core banking functions onto cloud platforms.
A Structured Approach to Core Modernization
Transitioning core banking capabilities involves assessing the current environment, setting goals, executing cloud migration, and optimizing leveraging cloud capabilities.
Current State Analysis and Planning
- Map out legacy architecture comprehensively
- Profile workloads and utilization
- Detail pain points and risk factors
- Build business case for migration
Execution Pathway
- Validate migration approach: Re-platform, Re-architect, or Rebuild
- Set up integration between cloud and legacy
- Mitigate transition risks proactively
- Establish governance model
Migration and Transformation
- Prioritize workloads to migrate
- Shift data while optimizing volumes
- Retire legacy systems gradually
- Iterate on enhancing architecture
Optimization and Innovation
- Instrument everything; monitor usage closely
- Right-size resources; tweak configurations
- Pilot new technologies like machine learning
- Roadmap future cloud-native offerings
This lifecycle methodology helps banks migrate core banking functions to the cloud systematically while unlocking innovation and savings.
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Real-World Examples of Cloud Success
Large banks who have adopted cloud strategies for core systems report excellent outcomes across metrics:
Cost
- 35% drop in IT expenses over 5 years (Morgan Stanley)
- Closed all but two data centers (Capital One)
Speed
- Software releases ship 5x faster (BBVA)
- New mobile feature rollout in weeks vs. months
Scalability
- Supported 10x transaction volume spikes
- Maintained 100% uptime despite surges
Innovation
- AI chatbot with 95% answer accuracy
- Launched blockchain trade financing network
Cloud modernization done right delivers a real edge to banks.
Key Steps for Smooth and Secure Cloud Migration
While promises are big, realizing results requires meticulous planning and solid execution:
- Consult deeply with cloud architects and partners
- Proactively address integration risks
- Validate data governance and access controls
- Tie cloud utilization directly to workload demand signaling
Rushing core legacy migrations risks major hiccups. But Banks who put in the work succeed tremendously.
FAQs
Q. What are the biggest cloud migration risks for banks?
A. Leading risks are system downtimes, cost overruns from delays, security gaps from misconfiguration, and lost data integrity. Mitigating these requires careful coordination across teams, legacy and cloud.
Q. When does cloud adoption typically make sense for banking cores?
A. Pivotal triggers include inability to quickly roll out new capabilities, security vulnerabilities emerging, rising web channel outages, and yearly core system costs exceeding $5 million.
Q. Which applications should banks prioritize moving first?
A. Banks often start by transitioning online/mobile apps, payments utilities, risk and compliance systems. Core ledger and reporting systems come later once integration capabilities mature.
Q. How should banks manage changes with customers during migrations?
A. Proactive communication via websites/alerts helps ease uncertainty. Feature launches showing stability helps rebuild familiarity. Maintaining outage SLAs preserves trust.
Conclusion
Upgrading rigid legacy systems unlocks next-generation banking services customers want. Cloud solutions bring vital speed, flexibility, and resilience. While migration journeys take years, incremental value flows throughout implementation. With proper vision and commitment, banks can transform into truly digital institutions. The time for cloud-powered core modernization begins today.
