Is your head in the cloud when it comes to core banking?

In my previous column piece, I concluded that there were considerable advantages of banks moving to the cloud but also significant challenges in doing so.

Being truly cloud native is a key consideration when looking at a new core banking solution

One of the challenges is navigating the sheer number of cloud options available and finding the right provider that meets your specific needs.

Not all cloud solutions are the same. They can vary from one extreme to the other. For example, one solution may be existing/legacy software packaged in a container (also known as a monolith in a container) and deployed on a cloud platform, while another solution may be software developed from the ground up specifically to take advantage of a cloud environment.

For me, the latter is what I would call cloud native. To take advantage of the cloud environment, your software has to be designed and developed to do so. There is no simple migration, which means it’s rewritten either in microservices or alternatives like serverless architecture, nanoservices, Function-as-a-Service, and so on.

Aside from this, core banking now has much broader requirements to help provide product innovation and to support emerging trends like tokenisation.

So, in looking for your next banking solution, some of the questions to ask vendors are:

• When was your solution developed? How much of your solution is code from an older platform?
• How does your solution take advantage of cloud technology?
• What new capabilities does your solution offer to support future requirements?

Being cloud native will significantly improve your future development lifecycles, improve scalability, and improve resilience while providing much lower operating and infrastructure costs. Well, that’s the theory anyway, because you can still create a cloud-native solution that is expensive to run (more on this in a future article).

Next, your core banking solution could be a single-tenant solution or multi-tenant solution. All banks can benefit from a solution that is multi-tenant, whether they use the capability for themselves or whether they actually share tenancy with other banks.

For themselves, a multi-tenant solution should allow a bank to run one core for all their products, customer segments, and geographies, while also enabling data segmentation. As I’ve written before, the evolution of banking has created silos, each serviced by different cores. Essentially, not only can a properly architected multi-tenant solution simplify a core banking estate, but the benefits of scale will also help reduce costs significantly. Questions to ask your vendor are:

• What products, customer segments, and geographies can a single instance of your core support?
• What is the greatest number of banks you have running on a single instance of your core?
• What is the cost difference between running on a single instance versus running on a shared instance with other banks?

I recently spoke with Alex Tasioulis, founder of Cloudified, a firm that helps banks, fintechs, and core vendors optimise their cloud implementations and costs. On this topic, Alex advised:

“The cloud promised cost savings and efficiency through ‘elasticity’, allowing businesses to rent extra servers specifically for traffic spikes, such as Black Friday and Christmas, instead of purchasing them permanently.

“However, these benefits of the cloud are only fully realised when businesses adopt ‘cloud-native’ systems capable of things like scaling up and down with no downtime. Systems that are complex, inflexible, and resistant to elasticity are not cloud native, and therefore cannot leverage the full advantages of cloud computing.”

For me, being truly cloud native and supporting multi-tenancy are now key considerations when looking at a new core banking solution. Of course, the real challenge is not finding/buying such solutions but implementing one alongside your existing technology estate. However, this is a challenge that must be faced, as not upgrading would be like saying, “I won’t buy an electric car until all the roads, traffic systems, and laws have been updated so that I can get the full benefits.”

This week, I’m just saying that if you are looking at a new core banking platform, why would you buy an old one that has been repackaged for the cloud rather than one built for the cloud?

About the author

Dharmesh Mistry has been in banking for more than 30 years both in senior positions at Tier 1 banks and as a serial entrepreneur. He has been at the forefront of banking technology and innovation, from the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).

He has been on both sides of the fence and he’s not afraid to share his opinions.

He founded proptech start-up AskHomey (sold to a private investor in spring 2023) and is an investor and mentor in proptech and fintech. He also co-hosts the Demystify Podcast.

Follow Dharmesh on X @dharmeshmistry and LinkedIn.

Read all his “I’m just saying” musings here.