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Transforming to cloud-native core banking

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April 06, 2023

A robust core banking system sits at the heart of every bank’s infrastructure and operations. As the banking technology landscape, regulatory demands, and customer expectations continue to change, it becomes imperative for banks and Digital banks to equip themselves with an evolving core banking system to enhance their banking services. 

Banks, including Digital banks, often face a perplexing challenge as they strive to achieve their envisioned goals. The presence of existing, outdated legacy systems becomes a hindrance to their banking services because of the following limitations. 

  1. Within the banking industry, including Digital banks, complexity arises due to several mergers and acquisitions, leading to intricate and legacy core banking systems. Additionally, coping with evolving regulatory requirements further complicates the situation for banking services. 
  2. Flexibility becomes a concern as core banking systems, initially built for reliability, become outdated, and depend on a dwindling number of specialists. Consequently, making necessary changes to these tech stacks becomes a slow and costly process. 
  3. Capability limitations become apparent as legacy cores struggle to meet evolving consumer demands. Many of these systems fail to meet expectations, such as providing real-time transaction notifications, deeper insights into spending habits, and rapid innovation. This is especially true for Digital banks, which aim to offer cutting-edge banking services. 

Plagued by these challenges, banking leaders, including those in Digital banks, agree that change is inevitable. To bridge this innovation gap, some banks invest in platforms that provide short-term gains, buying them time while the market innovates around them. Meanwhile, some players with a long-term growth strategy understand the need for a permanent solution to future-proof their banking operations and services. These frontrunners are opting for what’s called “Cloud Native Core Banking.” With this approach, Digital banks benefit from a highly scalable, API-led core that will compete with upcoming banking models and players in the market, enhancing their banking services.  

What is cloud-native core banking?  

Cloud-native Core Banking refers to a modern approach in which a bank's core banking system is built and deployed using cloud-native technologies and principles. In this context, "cloud-native" means that the application is specifically designed and optimized to run on cloud computing infrastructure. 

Traditionally, core banking systems were often built on monolithic architectures, where all the components were tightly integrated, making it challenging to scale and update the system. Cloud-native core banking, on the other hand, follows a microservices architecture, where the application is broken down into smaller, loosely coupled services that can be independently developed, deployed, and scaled. This approach enables banks, including Digital banks, to be more agile and responsive to changing market demands and customer needs, significantly enhancing their banking services. 

The following benefits emerge when migrating to a cloud-native core:  

  • Scalability for increased transaction volumes. 
  • Faster innovation and product deployment. 
  • Cost-efficiency with optimized resources. 
  • Enhanced security and compliance. 
  • Improved customer experience with real-time processing. 
  • Seamless integration with third-party services. 
  • Global accessibility without physical data centres. 
  • Faster time-to-market for new offerings. 

The final take 

Banks today, including Digital banks, are assessing the limitations and potential benefits of becoming early adopters of Cloud-native core banking. By using the right tools and devising a strategy, banks can smoothly navigate their journey to the cloud, significantly enhancing their banking services.   

The frontrunners, including Digital banks, are aware of the high costs cloud adoption entails. It all comes down to the long-term vision banks have in mind while planning their core banking transformation journey. With the rapid technological evolution and escalating customer expectations, digital banks must act immediately to prepare for the future. Collaborating with a seasoned system integrator expedites and ensures a smooth transition to cloud-native core banking, enabling banks and Digital banks to enhance their banking services and reap the benefits more quickly. 

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