Teun van der Veeken, Banking Consultant at Mambu, explains why banks must migrate to cloud-based models with SaaS and APIs to stay competitive. Overcoming hurdles can boost profitability, resilience, and engagement.
With digitally-native fintechs and financial institutions proving they can move much faster than traditional banks to deliver the improved, personalised experiences that customers expect, now is the time for banks to look at what they can do to level the playing field. The key to levelling up is for banks to migrate their legacy platforms to new cloud-lite models underpinned by SaaS and APIs – and given the churn that these incumbents are experiencing, this is now a strategic priority.
With McKinsey predicting that banks whch successfully migrate to the cloud will become bigger, more profitable, experience growth at a faster rate and generate a value creation opportunity of up
to USD 20 million – what is preventing incumbent banks from embarking on their cloud migration journeys?
There are four main reasons that core migration would be delayed or derailed:
Banks or financial institutions may fail to get stakeholder buy-in because the technology transformation journey is perceived as costly and complicated.
These institutions may already have high levels of technical debt or IT costs which may cause core modernisation to be pushed further and further down the line.
Many leaders at banks and financial institutions experience migration inertia, which is a fear of making the wrong decisions. This fear is rooted in the idea that if legacy systems work, why would we spend time and money to transform what isn’t broken?
Financial institutions may have already invested in on-premise technologies and resources.
Overcoming these hurdles can be an extremely difficult task for banks and financial institutions - but it is key to remember that reinvention does not need to be disruptive, expensive or slow. With today’s cloud-based SaaS solutions powered by APIs, these institutions can benefit from optimised and flexible banking cores without experiencing any major disruption along the way.
The wrong approach to cloud core modernisation can derail tech stacks, so to help your migration stay on track, there are some common pitfalls to be aware of to ensure a smooth transition.
One example is choosing the wrong starting point. There is a risk of embarking on a transformation project just to achieve technological advancement or to achieve operational objectives. Prioritising this over business needs and non-functional goals, such as enhanced customer experience, can result in overly expensive infrastructure upgrades that will ultimately fail to deliver bottom line value. The solution to this is ensuring that your transformation goals support your business strategy from the start, and to use the architecture as a means to achieve this. As more banks look to begin their cloud core migration journey, businesses should aim to be agile, customer-centric and future-ready to ensure success.
Another key pitfall is having a closed mindset that stifles opportunities. Many businesses will try to do everything in-house and look to extend their legacy technology estate with new technologies, rather than risk repeating the failures they’ve experienced in the past. This strategy is too limiting and risk-averse, it can lead banks to make decisions that could end up costing more. The solution to this is encouraging company-wide customer and solutions focused thinking. Banks should support cross-functional teams and allow them to focus on creating end-to-end digital experiences and developing highly agile business capabilities. These institutions should also be prepared to continuously embrace change and keep an open mind to what benefits modern technology and collaborative ecosystems can unlock.
A final example of a pitfall is being overly disruptive and going all in, all at once. Banks should avoid “big bang” core migration as ripping and replacing is heavy on resources and can be extremely risky and disruptive. The solution to this problem is to adopt incremental transformation with a dual core shared legacy platform or an on-the-edge parallel core for a digital speed boat brand. This will allow banks to take the lead and build out a low-cost, flexible core in months, rather than years, at a much lower cost.
One key advantage of cloud core migration is that banks will benefit from more sustainable operations. The future of core banking migration is SaaS platforms, flexible APIs, composable architecture and connecting ecosystems. Our customers that have adopted this approach have benefitted from cutting the total cost of ownership of their tech stack by 35% - 50% and halving the time to market.
Another key benefit for banks that migrate to a cloud core is that they will have better resilience against disruption. Over the past few years, banks and financial institutions have been operating against a turbulent economic backdrop, such as during the COVID-19 pandemic. Core flexibility allows banks to respond faster to change and allows them to recover more quickly in the face of major market disruption. Our internal data revealed that our customers performed almost eight times better than banks and financial institutions that do not have a cloud core and had a stronger rate of recovery, which can be seen from them bouncing back 3.5 times higher than non cloud-core institutions in 2021 following the pandemic.
A final benefit of cloud core migration is that customers' engagement and experience will be enhanced. The adoption of cloud cores empowers banks to deliver more personalised services, which improves both customer experience and customer engagement significantly. There are many reasons for this, including the idea that cloud cores allow banks to scale services and resources quickly and efficiently based on customer demand and cloud-based solutions offer a more cost-effective alternative to legacy infrastructure which allows banks to invest more in areas that will directly impact customer engagement and experience.
In an era where customer experience is central to business’ success, now is the time for banks and financial institutions to embark on their cloud core migration journeys and move at the speed of nimble fintechs to unlock success.
Teun is a financial technology professional with 10+ years of expertise working with banks, insurance, and fintech companies on their digital transformation strategies. He is currently bringing Mambu's cloud banking platform to more financial institutions in the Benelux and Baltics regions.
Mambu is the world’s only true SaaS cloud banking platform. Launched in 2011, Mambu fast-tracks the design and build of nearly any type of financial offering for banks of all sizes, lenders, fintechs, retailers, telcos and more.
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