In 2022, we’re seeing increasing modernization and digitization across the financial services sector—especially in banking. If you work with any sort of legacy banking system, you’ll be aware of this drive for transformation, which is occurring at a rapid pace compared to other sectors.
Providers of modern banking services have a number of options at their disposal when looking to update their legacy systems, but the approach many are turning to is cloud computing. So, what is cloud banking, and how will this change affect and (hopefully) benefit banking services?
Understanding the benefits of switching to banking cloud architecture can also help you appreciate the wider effects of opening or moving other services to the cloud, allowing you to answer several important questions, such as how adopting cloud core banking will affect the way you work and provide services to customers, whether there are any caveats that should be considered, and how ready you are to modernize.
Defining banking in the cloud
Cloud banking systems deliver banking services via secure servers accessed over the internet. This allows you to run core platforms and apps on these rather than physical servers and networks, which can be costlier to install and maintain.
These systems are easily accessible via cloud APIs (application programming interfaces). This represents just one of the ways that legacy banking systems can be modernized.
Why opt for cloud banking platforms?
A number of benefits come from switching your core banking systems to cloud banking platforms. The most obvious is it transfers the responsibility and cost of ownership for the physical infrastructure and often-complicated networks that connect your locations to cloud servers. This frees up your IT team to focus on other areas of your business across your various branches.
You also have to consider that sticking with banking legacy systems could see you fall behind your competitors. Almost every sector is making the move to cloud-based services, as demonstrated by the growth of SaaS (software as a service) and changes in other industries e.g. virtual contact centers are now the norm rather than the exception.
The four primary benefits of cloud computing in financial services are:
- Better operational speed and capability. Your bank collects huge amounts of data every day. With cloud-based banking, this is more accessible. A cloud banking system can also provide you with better connectivity as well as more automation and accurate, data-driven insights in real-time that can greatly improve operations.
- Strong security. It’s not just a case of good business practice to protect your customers’ data; you also have regulatory frameworks and laws to conform to. Since your data will find its way to the cloud eventually, it makes sense to ensure that it’s secure within the cloud. That way, rather than having a secure data center but little else after it gets used on a variety of digital channels, you have security throughout the entire process. Plus, providers are constantly analyzing their networks and updating them to meet potential threats.
- Better customer insights mean improved customer satisfaction. Expansion of the financial services and fintech markets means there is more competition than ever before. Cloud banking platforms can provide you with more detailed customer insights so you can provide services that meet their expectations.
- Significant cost savings on maintenance and middleware. The primary cost benefit of transferring responsibility for infrastructure to your cloud provider is that you’ll be able to reduce your physical IT infrastructure. You’ll also see a reduced outlay in terms of security as your provider will constantly update and improve this at no extra cost.
Is cloud banking the only way to modernize a legacy system?
It’s important to point out that modernization is not a one-size-fits-all approach. While cloud banking represents a great solution for some companies, not every business has the time or resources to immediately and completely implement it. Nor do they necessarily want to.
At OpenLegacy, our focus is on facilitating transitions that work for the individual enterprise. That means whether you want to gradually transition to the cloud, fully embrace its adoption, or incorporate these methodologies into your on-prem core banking, there are tools and approaches available to modernize your systems and make them work for you.
To put it simply: you don’t have to fully transition to a cloud platform to reap some or all of the benefits of cloud banking. This can be achieved, for example, with the help of APIs that are scalable, flexible, and driven by the needs of the user.
What kind of opportunities do cloud banking services offer financial institutions?
Banks need to keep pace with the changing world around them, not just in terms of new technology and advances in fintech but also in rapidly changing customer expectations. People want banking services that offer instant digital access to their accounts, plus they want to make online purchases and pay utility bills via their banking apps.
Cloud banking services allow you to bring together all the data you collect and use and also the various software and applications your customers may use or that you use internally. By centralizing all this information and your applications, you increase functionality and accessibility and allow for quick and easy scalability.
Benefits of cloud adoption and computing in the financial services sector
As well as the benefits of cloud adoption we’ve already listed, there are others that come with a move to the cloud. These include:
FlexibilityCloud adoption in the financial services sector means you no longer face the data storage challenges you previously had to contend with. Access is easier and faster, which means better regulatory reporting, improved analytics, better insights, advanced learning, and improved risk mitigation.
DevOpsWith tech advancing so rapidly, cloud-based banking architecture allows you to develop new ideas and apps faster. That means you can ensure compliance while creating new products with reduced levels of risk. If you have a DevOps team, development, testing, and adjustments to existing technology are all easier to achieve.
ComplianceThe banking sector has a raft of regulations and laws to comply with. These cover areas such as the prevention of money laundering, privacy and disclosure, and fraud prevention. Banking cloud architecture makes regulatory compliance easier as it can track and process data faster than legacy systems.
TechnologyAdvances in technology within the banking sector are not just about apps and software. As with other industries, you’ll have noticed an increase in AI (artificial intelligence) and ML (machine learning) for uses including personalization. Integrating AI and Ml is simpler with cloud-based banking and it offers you scalability when needed.
The drawbacks of legacy financial systems
On the whole, the legacy financial systems used by traditional banks are becoming increasingly outdated as technology evolves. While smaller banks and institutions may not see the need to embrace digital transformation, larger organizations will struggle to compete if they don’t make the move to the cloud along with their competitors.
There are several disadvantages to clinging on to a legacy system:
- Manual processes. While even the oldest legacy banking systems will be highly automated after decades of optimization, they’re not designed to work with other digital channels quite so well. That means you’ll have to undertake manual work, and spend longer on what should be simple things. A cloud system is designed to work with other modern technology, meaning your workflow will be effective (and often, automatic!)
- Limited reporting capabilities. With a traditional banking system, you’re often restricted when it comes to reporting too. As the amount of data you’re collecting and utilizing continues to increase, this can limit the accuracy and scope of what you can report.
- Restricted data integration. Data drives your business, and the amount you deal with is increasing on a daily basis. Traditional legacy systems make it difficult to integrate vast amounts of data from various systems.
- Web and mobile access. If you’re still operating a legacy banking system, you may find web and mobile access are severely restricted, limiting some of the functionality that helps you meet customer demands.
- Remote access. With many people working remotely or according to a hybrid model, accessing the information and data needed to do their jobs can be next to impossible. Even if they’re able to access the system, there may be major security issues.
Modernize your legacy banking system with OpenLegacy
So, you’ve now seen why a legacy bank system is, in many cases, a thing of yesterday and why it’s time to future-proof your business and shift to the cloud.
Handily, OpenLegacy’s OL Hub and legacy modernization solutions offer you the functionality and features needed to make this happen. These smart solutions help you easily move between your legacy core systems and more streamlined cloud-based technologies by bridging the gap between the two.
This enables businesses to turn their mainframes from a restrictive cage into an open ecosystem that reduces outlay while reaping the benefits of cloud banking systems. Your customers will be made happier, as their data will be better protected and they’ll have access to a wider range of services. Key decision-makers will also be pleased as you’ll both lower costs and gain better data that empowers you to make more informed decisions.
Legacy banking system FAQs
What is cloud banking?
Cloud banking is when you store all your data and apps in servers that are accessible via the internet rather than using traditional, location-based infrastructure that can be unwieldy and inefficient.
Why are banks moving to the cloud?
Banks are choosing to move for several reasons. Cloud-based banking systems come with many benefits, including:
- Reduced costs
- Increased security
- Data analytics optimization
- Easier scalability
- Better agility
- Easier compliance
- More efficient business processes
- Reductions in IT complexity
Cloud migration thus makes good business sense.
How is the cloud used in banking?
This technology can be used in a variety of ways by enterprises that want to move to digital banking.
As well as allowing the storage of huge amounts of data, cloud-based ecosystems mean better analytics and insights. They can also aid organizations by making compliance easier and by detecting fraudulent activities and/or money laundering patterns. You can enhance your CRM to provide a better customer experience too.
Which cloud model is best suited for banks?
Private clouds are a necessity given the amount of data being handled and its sensitive nature.
These can be managed by the bank itself or a reliable third party via an open banking model. In many cases, banks will use a third-party cloud-native provider.
How is cloud computing transforming and benefiting financial institutions?
Across nearly every sector, the global marketplace is undergoing rapid digital transformation. Cloud computing can help banks become digital businesses and offer multiple benefits, including better security, increased compliance, an improved user experience for staff and customers, and significant cost savings.