Cloud-native banking offers the digital revolution as a service
The traditional, mainframe-based banking systems prevalent in global banking present one of the most entrenched legacy infrastructures today. But as cloud-native platforms and services become more attractive from the point of view of cost and reliability, banks must consider whether this archaic infrastructure can still play a meaningful role in the future of financial services.
Strategies for modernization
Legacy systems are becoming increasingly difficult to justify as maintaining them becomes more of a cost burden than upgrading to a new, more efficient cloud-native system. Developers and engineers with expertise in older-generation languages and protocols, on which legacy was built, are becoming a prized commodity. These challenges highlight the need for a smooth transition to new systems, as failed migrations and upgrades can have significant consequences for banks and customers, such as lost access to money, incorrect balances, and legal and regulatory repercussions.
According to Nick Wilde, Managing Director, APAC, Thought Machine, to avoid these issues, serious consideration should be given to the benefits modern technology offers with respect to digital transformation. “Partnering with a world-class core provider that brings experience in migrating Tier 1 bank workloads is critical in ensuring a smooth transition to new systems,” he said.
The need for greater connectivity between disparate backend systems is driving up global IT expenditure for banks, with an estimated US$309 billion in 2022, of which US$78 billion will be in the Asia Pacific (APAC) region. In addition to ballooning overheads in operational expenditure (OPEX), the costs of operational disruption can also be sizable, such as slower response times and poor customer experiences during system upgrades and outages.
Advantages of migrating onto a cloud-native core
Banks have taken different approaches to modernizing their technology stack. According to Wilde, one common approach is to ‘hollow out the core’, gradually diminishing the functionality of legacy systems over time. While this approach can be effective in the short term, it may not be as good a solution as a fully cloud-native approach.
The advantages of migrating onto a cloud-native core are significant. Running a cloud-native core offers a bank several benefits over legacy, on-premise, and mainframe systems. Legacy systems tend to run on in-house servers and thus require the maintenance and provisioning of expensive hardware. Wilde said that this creates an administrative and capital burden for any bank, which is entirely negated if it uses cloud technologies for its systems.
“The legacy nature of these systems means that banks have an extremely limited amount of product configuration available to them. In effect, they are stuck with offering a simple and rigid set of products for end customers,” he said.
Neobanks and disruptive financial technology (fintech) startups are beginning to offer solutions as comprehensive as a traditional retail bank. They have the agility to produce banking products quickly that fulfill specific market needs based on demand. Their time-to-production is short and in many ways, enviable.
Banks typically go through lengthy development cycles to develop new bespoke banking products from scratch. These come with a security burden that makes a cloud-native approach sensible. Software as a service offers financial institutions a good degree of ‘ready-rolled’ security, where the infrastructure and ongoing development methods used by cloud service providers remove many of an in-house IT department’s headaches.
A cloud-first approach places banks in a position to manage real-time data better, and cloud-native infrastructure such as containerization allows agile development of new and extended financial services to a broad client base. Interoperability, another central tenet of cloud-first architectures, means banking services can be built independently from an existing IT stack yet interface with it an an industry-standard manner.
In short, vertical integration need not affect monolithic architectures except to extend them with pliability, elasticity, and options via secure APIs (application programming interfaces).
Migrating with Vault Core
Migrating to a cloud-native core banking platform, such as Vault Core from provider Thought Machine, can bring many benefits over traditional core systems. According to Wilde, Vault Core allows full product configurability, providing a blank canvas for banks to build, modify, migrate, and launch products without being limited by parameters or boundaries. It’s a single platform that can run the full range of retail and business banking products, with upgrades performed on the core platform benefiting all customers.
“This platform is maintained solely by us, and the version is never forked nor customized for any one client. If an upgrade is performed on the core platform – all customers receive the benefit. The portion of Vault Core in which a client creates and runs products is entirely for the client to configure without dependency on us,” said Wilde.
Vault Core is also designed as a series of self-sustaining units, offering cloud-native benefits such as disaster recovery, high availability, and enterprise-grade security.
Vault Core’s microservices-based architecture offers a functional design and operational resilience to scale and deliver product development efficiently. Increase your operations’ competitive advantage with Vault Core, the only cloud-native platform that delivers greater agility to serve the complex needs of a global bank or a small startup. Contact Thought Machine to learn more about Vault Core today.