Ready for Liftoff: Your Cloud Journey Starts Here

Banking customers expect the latest and greatest. Financial institutions know this, and they know the cloud best positions them to deliver. But are they modernizing enough? Most are headed in the right direction—or at least they plan to. A recent survey conducted by Hanover in conjunction with Temenos revealed that 68% of banks plan to invest in cloud-based core banking systems to deliver what their markets want. Still, plans are one thing, action is another.

According to Deloitte, 52% of banks and capital markets organizations say they have migrated more than half of their data to the cloud. [1]

Relative to other industries, Deloitte pointed out, financial entities have a way to go. Other reports also reveal there is plenty of room for improvement, especially when it comes to core banking systems.

According to Accenture, only 10% of core workloads have moved to the cloud, a figure the consultancy says is “the biggest untapped source of transformation value for financial institutions,” adding that “core modernization is the gateway to real-time decisioning, embedded compliance and AI at scale.” [2]

Modernizing a core banking system is no small feat. It’s much more complex and risk-laden than updating front-end banking components. It can call for deep architectural changes, multifaceted and often nuanced regulatory considerations and substantial CAPEX or OPEX outlays, considering whether the bank opts for re-platforming, cloud-native migration, or a hybrid approach.

While such barriers to cloud banking modernization may seem imposing, for those who team up with the right partners, a bright and prosperous future awaits as now is the perfect time to move forward, participants concluded at Temenos’s recent webinar, Breaking the Cloud Barrier to Core Banking.

Why banks hesitate to modernize

Despite sincere intentions to modernize, many banks still run on outdated technology systems because they work—and because bankers know them.

They’ve been tweaked, fiddled with, customized, and patched up year after year, covered with fingerprints from every tech team that has come and gone for years, becoming part of the institution’s DNA.

It’s no wonder banks fret migrating such a beast to the cloud.

“Many banks still operate in decades-old systems that are deeply customized, deeply integrated, and moving that into a modern cloud-native platform is definitely, by far, not a simple lift and shift,” Bruno Macedo, Temenos’s Head of Data and Analytics, told the webinar. “It’s like trying to modernize a running train that cannot stop while your travelers and your staff are in the train.”

Regulatory concerns can also slow progress to core banking migration, including how modernization will affect data residency requirements, auditability factors, and resilience obligations.

While technological and regulatory concerns often take center stage, success often hinges on a key factor—people.

Corporate culture can also pose challenges, especially in banks where employees still feel comfortable and productive working on outdated technology.

While learning new technology may be a part of life, learning new skill sets can cause stress. For example, working with DevOps and collaborating with external partners to extract greater value from data, real-time analytics and AI can fuel unease for employees not accustomed to the modern banking age.

“The technology part is usually manageable, but the human part can actually face a lot of challenges from upscaling, upskilling and working that requires leadership that understands that working in a cloud environment is way different than having your infrastructure on-prem,” said Macedo.

“It will require coordination between different sectors and different people and a culture of the data-oriented and the business-oriented.”

Still, modernizing the core of any financial institution is not something that banks can put off indefinitely.

Customers today expect modern products and services tailored to their needs, which make core modernization a foregone conclusion for most.

Kicking the can down the road can be increasingly costly.

“Today’s environment in banking is rapidly changing. We see fintechs becoming more mainstream, we see non-banks also joining the marketplace and becoming more visible than ever before, and we also see that banks are basically suffering under the pressure of consolidation,” said webinar host Roel Jansen, Temenos Solution Marketing Director.

“This means that banks need to sharpen their businesses at all levels.”

Modernization: Different paths to success

For banks looking to strengthen their business models with a fitting cloud strategy, there are several modernization paths for them to take.

Some may go quickly, some may wish to go step by step while others want what’s cost-effective, said Sayantan Biswas, Senior Partner, Development Specialist at Amazon Web Services.

No matter what their path, all of them must rethink their economic models to remain profitable and competitive.

“They are no longer asking why they should move to the cloud—that question has been answered,” said Biswas. “The question has now more become how do we move more efficiently to the cloud without disrupting our current activities and what is it that we are going to get in terms of business value?”

One approach sees a bank modernizing a particular element of its core by taking it to the cloud. They may, for example, start with a customer communications module that delivers e-statements, notifications of changes in terms and conditions or announcements on latest offers. This option is often popular with more cautious and cost-sensitive financial institutions.

“They would bring in the technology from one of their partners and augment their core banking product,” Biswas said.

A second option, often referred to as a “lift-and-shift” approach, sees a bank move a core from a data center to the cloud via a hyperscaler though with no changes to architecture or code.

“Once they are in the cloud, then they start on their core modernization strategies by picking which modules to prioritize,” said Biswas.

A third and more aggressive option sees the bank completely migrate all at once, a method known as the Big Bang approach.

A more popular hybrid approach involves the launch of a completely new unit on the cloud, a sleek and modern new subsidiary delivering innovative banking offerings.

“You are actually launching a new business because you want to tap into the new tech-savvy customers who want to be associated with a nimble digital bank rather than a legacy bank.”

Banks who do modernize their core see noteworthy results:

• They report 31% higher STP rates
• They report 37% lower data duplication rates
• They report 30% higher client satisfaction scores
• They report 24% more IT spending into growth and innovation (vs keeping the lights on)[3]

Going with a partner makes the journey easier. Temenos, especially its SaaS offerings, and AWS have long and proven track records of excellence that have facilitated many different core modernization journeys in the past.

“The right cloud decisions for a bank depends on their strategy, the pace of change, the regulatory environment and the organization model they aim for,” said Macedo. “We have a long-standing relationship with banks globally, supporting the deployment of both Temenos Digital and Temenos Core Banking Solutions, and these platforms are already trusted by a wide range of institutions,” he added.

“If you combine that with our Temenos SaaS offering, that brings the core banking capabilities to all of the SaaS capacities and advantages that we mention, that leaves banks to operate, support, manage and scale their offerings while receiving ongoing upgrades for their banking platforms.”

Biswas agreed, illustrating the enormous size of the AWS marketing place and the value it brings.

“Banks have access to 20,000-plus product listings under 70-plus product categories from more than 5,000 sellers,” he said

“Customers who have shifted their software procurement to AWS Marketplace have improved their vendor onboarding process.”

[1] Banking & Capital Markets Data and Analytics Survey | Deloitte US

[2] Why cloud and AI are the keys to banking’s long-term growth | Accenture Banking Blog

[3] SOURCE: Temenos Value Benchmark data