Customers’ expectations of always-on, real-time services and convenience are in stark contrast with the reality of the core systems that serve them, and established institutions are seeing an exodus of customers to providers able to make good on those demands.

The irony is that older banks possess an incredible amount of data accrued over decades, yet are unable to capitalise on that rich seam of information at their disposal. Systems architected 30 or 40 years ago may be proven, reliable and relatively secure, but were never designed to leverage data in the ways now required to guide service design and refinement at the kinds of speeds needed to remain competitive.

Financial institutions have a dual challenge, therefore. Core banking systems need to be replaced or phased out, and the data archives locked into mainframes and legacy storage released to improve customer experience, offer innovation, and take the fight to the new and neobanks that threaten to out-compete longer-established businesses.

Trusted market intelligence organisation IDC recently published papers in conjunction with Thought Machine, a next-generation core banking provider, on the options available to banks reliant on outdated infrastructure. It describes how fourth-generation cloud technologies now offer a choice of migration strategies to replace and/or update core functions.

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Non-exclusive options of progressive, greenfield and ‘big bang’ methods are considered in detail, and the papers assert that an amalgam of these strategies is the most likely to succeed in the majority of cases. All, however, are predicated on the embracing of technologies like interoperability via APIs, microservice-based architecture, low-code compatibility, platform agnosticism and scalability/elasticity.

Using methodologies like architecture-as-code, self-healing and baked-in scalability, banks can develop real-time services and downstream data for analysis, all based on modular architecture that’s secure and resilient. These methods enable fast, iterative development, lowering costs and time-to-market, as well as widening product portfolios (of both customer-facing and business intelligence applications).

Once banks engage in revising their core systems, they can begin to develop an ‘enterprise intelligence’ approach that unlocks their data assets that will inform, with empirical information, long-term strategies unencumbered by the limitations that are imposed at a deep level by aging code. Running on core technology that is based on interoperability and modularity ensures an open future, allowing emerging technologies (machine learning is often quoted in this context) to be implemented – creating the possibility to develop unique and differentiating products.

The emergence of an enterprise-wide data strategy unlocks a strategic treasure-trove of information that helps banks identify, via advanced analytics, key information used to drive innovation, enhance customer experiences, and improve operational efficiencies. The myriad advantages of EI (enterprise intelligence) are explored further and possible roadmaps are outlined in ‘Unlocking Enterprise Intelligence in Banking Systems’ which is available here.

There are clearly challenges on the route to modernisation, not least of which is the maintenance of reliable, steadfast services as work proceeds. The two papers describe the pros and cons of common migration strategies and how institutions might best pick their own course.

It’s important to stress, however, that although there are myriad options, there are a number of ‘givens’, paramount among them being the use of cloud-native methodologies and techniques, even when considering a waterfall, ‘big bang’ strategy. It’s also worth noting that cloud-native methods are not solely implemented on cloud providers’ resources. Like many industries subject to high levels of governance around data security and compliance, many financial organisations adopt a hybrid topology, often to maintain a separation between critically sensitive data (airgapping) or to prevent vendor lock-in, among other reasons. Cloud-native technologies allow for this, and ensure that during and after migration, data governance is strictly observed.

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The agility and scalability of cloud-native confers on platform architects the ability to structure core and ancillary systems however they’re required to be distributed, regardless of hosting platform, remote or on-premise. With the right approach, a bank’s options remain open and it can react quickly to changes in governance, as well as to market conditions, altering topology at will.

Finally, it’s worth circling back to the reasons for overhauling core infrastructure. Replacing old technology with new should not be an empty gesture because of a perceived need to progress. The end goals should remain clear in the minds of decision makers: to enable practical use of existing and future data resources and to create a basis of technology that is adaptable, secure, compliant and agile. On that basis, banks can innovate, lower the cost and time required for innovation, and compete with new-generation financial organisations that operate with little technical debt.

Startup banks and neobanks may come to the table with fewer encumbrances, but they lack the powerful body of historic data spanning multiple products that older institutions have. And it’s data, at the end of the day, that is the one resource that truly empowers.

Read the reports, ‘Driving Innovation Through Cloud-native Core Banking Platforms’ and ‘Unlocking Enterprise Intelligence in Banking Systems’ for fuller discussion of the issues covered here. Discover the cloud-native core banking and data services portfolio from Thought Machine by heading here.

The post Data Strategies That Dictate Legacy Overhaul Methods for Established Banks appeared first on Tech Wire Asia.

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

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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.

The post Cloud-native banking offers the digital revolution as a service appeared first on Tech Wire Asia.

With the age of core banking technology in Asia at 20 or more years, the demand for a modern solution is huge. Just last year, US retail bank JPMorgan Chase announced its intention to replace its legacy technology platform with a cloud-native core banking system, one of the first major FSI players to do so.

Many legacy core systems remain in place, and these systems are still the foundation of banks’ deposit, loan and credit processing transactions and data after many years. Most incumbents recognize the need to innovate, or risk falling behind.

Financial institutions such as Chase, HSBC and Standard Chartered are using cloud infrastructure from major cloud infrastructure providers such as Amazon Web Services (AWS), Google Cloud Platform (GCP), and Microsoft Azure – among others.  By moving away from costly, custom architecture and on-premise hardware, banks are benefiting from the relative ease of deploying products in the cloud and unlocking opportunities to innovate at scale.

Existing core systems have been shown to be inadequate to deliver the experiences that today’s customers are demanding. Additionally, layers of regulations increase operational costs as existing systems cannot be efficiently re-engineered to comply.

Legacy on premise IT systems can be extremely costly to maintain and are rarely pliable enough to support emerging digital offerings. Cloud computing provides the sort of flexible environment where new products can be built and run – no doubt why 94% of banking executives believe that at least half of their organisation’s business will be in the cloud in the next two years, according to Accenture Technology Vision, 2021.

Traditional core banking systems were built with reliability in mind, but these frameworks are increasingly outmoded, with fewer specialists available for repair and maintenance operations. They can be unreliable, slow, and costly to upgrade or extend. But change is inevitable as financial products grow in intricacy and capabilities.

Some banks have attempted to bridge this innovation gap with short-term upgrades designed to stopgap a growing technological headache. By moving functionality away from the original core system and patching in new functionality, banks have extended their core lifespans. However, these ‘hollow cores’ only provide a temporary solution – they lack the flexibility and capabilities to give banks the capability to compete in an evolving environment.

Much more efficient and cost-effective are cloud-native core banking solutions, which empower legacy banks to easily connect to the broader fintech ecosystem by leveraging industry-standard APIs. APIs in modern core systems dramatically reduce the cost and complexity of building a complete modern bank.

As with other enterprise industries, cloud-based services have the flexibility to integrate ‘out of the box’. With this level of agility, banks can move away from resilient yet closed on-premise systems, and towards cross-connected ecosystems in distributed environments.

Most customers today expect high quality personalised services. Fintech, e-commerce, and entertainment are raising the level of quality delivered to consumers globally making the quality gap more noticeable in traditional financial services. Updating core banking systems to the latest and greatest technology is an essential prerequisite before banks can deliver those market-leading features and experiences.

Moving core banking systems to the cloud will not only generate significant cost savings, but will enable and deliver better customer experiences. With cloud migration in the financial sector gaining momentum (arguably because of competitors’ moves), a new generation of cloud-native core banking providers is emerging.

Vendors are seeing the opportunity to provide legacy-ridden institutions the type of agility and lower operational costs that previously had only been possible after an extensive and expensive in-house re-engineering of systems written in a different era. Now banks can migrate much more quickly and easily, with proven cloud-native technologies already in place, and already data compliant.

Get up to speed on transforming the core of banking with Thought Machine’s whitepaper on comprehending the scale of the migration conundrum.

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