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Transforming to cloud-native core banking

  • April 01, 2023

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Written By Systems

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 to equip themselves with an evolving core banking system. 

Banks often find themselves facing a perplexing challenge as they strive to achieve their envisioned goals. The presence of existing, outdated legacy systems becomes a hindrance because of the following limitations.  

  1. Within the banking industry, 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. 
  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 Flexibility becomes a concern as core banking systems, initially built for reliability, become outdated, and depend on a dwindling number of specialists.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. 

Plagued by these challenges, Banking leaders 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 is innovating around them. Whereas some players with a long-term growth strategy in place understand the need for a permanent solution that will help them in future-proofing their banking operations. These frontrunners are opting for what’s-called “Cloud native Core Banking”. With this approach, Banks are able to benefit from a highly scalable API-led core that will compete with upcoming banking models and players in the market.  

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 to be more agile and responsive to changing market demands and customer needs. 

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 centers. 
  • Faster time-to-market for new offerings. 

The final take 

Banks today are assessing the limitations and potential benefits of becoming an early adopter of Cloud native core banking. By using the right tools and devising a strategy Banks can smoothly navigate their journey to the cloud.  

The frontrunners 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, 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 to reap the benefits more quickly. 

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