Clouds London

Migration to the cloud could be a huge cost-saver for banks, as well as allowing a stronger focus on customers. Bill Lumley reports.

According to a flurry of recent announcements, all banks should have migrated or be migrating from legacy systems to the cloud, a process now seen as mainstream by banks and fintechs alike. However, many financial institutions have yet to embark on this journey. 

Banks claim to be aiming to triple their use of the cloud by 2025, but just 5% of them currently host more than half their data in this way, according to a report by US digital consultancy Publicis Sapient. More than two-thirds of banks want at least 30% of their applications and data to be in the cloud by 2025, three times their current level, the report says.

Already on the move

Germany’s Raisin Bank took the decision to migrate its entire legacy platform to the cloud three years ago. The bank is a result of a 2019 merger between open banking fintech business Raisin and its long-term service bank, MHB Bank. The merger enabled MHB to meet its ambitions to expand its area of operations, with the complete process of migrating to the cloud taking two years. 

At the time of acquisition, MHB had a legacy core banking system. Dominik Zühlke, chief product officer at Raisin Bank, says the decision to migrate to the cloud was simple. “Compared with other banks that had a wide variety of business customers and a great many retail customers, MHB was always a business-to-business bank,” he says. “Therefore, the amount of data we had to carry over was small in comparison to what, say, a Commerzbank or Deutsche Bank would have to do.” 

This month, Antigua and Barbuda-based North International Bank (NIBank) went live in switching its retail banking and private wealth business to composable banking open platform Temenos. Composable banking is a flexible approach to assembling financial services using the building blocks of independent, best-for-purpose systems.

Jordán Silva Tugues, CEO of NIBank, says modernising its technology with the cloud will “improve the bank’s digital customer experience, increase efficiency, and propel us to the forefront of banking in the digital era”.

A quick but careful step

Cloud banking platform Mambu and tech advisory firm Celent jointly produced a report this month suggesting that globally, banks could save $240bn by switching to the cloud. The report, entitled ‘The tipping point for core migration’, claims banks could reduce their core spend by 76% over five years by migrating to cloud-native core platforms, resulting in an IT cost saving of 15% over the same period.

“It’s do or die for banks when it comes to migrating to the cloud,” says Peter Richmond, vice-president of customer success at Mambu. “IT spending rightly remains a number one priority with increasing pressure from digital challengers and cloud-native new entrants. In a crowded market and in the face of growing economic pressures, the time is up for digital laggards.”

If you don’t use the cloud, then you have already fallen behind

Dominik Zühlke

Mr Zühlke meanwhile stresses it is important not to play down the immensity of the task for the incumbent bank to achieve migration. He says that banks that have not already begun the process should start to do so immediately, although he warns it is not something that can be rushed into. “It should be something that is a long-term goal on your roadmap, and you work towards it with a lot of vigour and a lot of commitment, moving piece by piece,” he says.

Enabling customer focus

Now only around 5% of Raisin Bank’s operations do not run in the cloud, which include Microsoft Office-related items. “The majority of our business is completely cloud-native [and] cloud-based,” says Mr Zühlke.

“It is important for banks to understand that cloud-based software engineering is simply the way software is created in this day and age. If you don’t use the cloud, then you have already fallen behind. It’s not a disruptor, it’s mainstream,” he adds.

Mr Zühlke explains the cloud enables him to focus more on the needs of customers and not on hosting, running, updating and fixing the infrastructure. But not everyone needs to go “full cloud native”, he says. “There are cases where hybrid solutions make sense.”

The cloud is more cost effective to integrate and maintain than legacy systems, a claim Mr Zühlke says is borne out by Mambu and Celent’s research. Mr Richmond supports this by saying that “once operational, a cloud-native core quickly pays for itself and unlocks efficiencies in other areas, freeing up vital resources that banks can deploy elsewhere.”

Use of the cloud is clearly not a silver bullet that can solve all of a financial institution’s problems, but the message coming across now is clear: if banks haven’t begun to embark on their migration to the cloud, they should start looking to do so immediately.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter