The future of banks and centralized core banking systems in the cloud

By 04/27/2023 No Comments

The banking industry is in the midst of a major transformation due to the rapid development of cloud technology. With a network-based system, banks can easily access updated security protocols, receive real-time news on customer activities, and use predictive analysis systems. Additionally, banks can save on hardware maintenance and storage costs. Furthermore, cloud solutions offer data protection features and solutions for the most dangerous emergencies, which are essential for banks. Cloud computing makes it easier for financial institutions to access new technologies such as machine learning and artificial intelligence that can help them automate processes and reduce costs. Finally, cloud-based solutions offer banks greater security than on-premise solutions (i.e., manually installing a specific program on a company server, computer, or other device). Thanks to security protocols, financial institutions can securely protect their customers’ data while ensuring compliance with industry regulations.


From on-premise to cloud: differences in the core banking sector

The cloud computing model represents a paradigm shift from the past, offering an approach to the implementation of information technology that divides traditional IT systems into smaller components hosted in a central location and managed by the cloud service provider. In terms of costs, this model has been shown to reduce capital and operational expenses that can be used elsewhere. Cloud computing is a “plot-twist” that moves from an on-premise infrastructure to one provided by third-party providers such as Amazon Web Services, Microsoft Azure, or Google Cloud Platform. Those who make this change do so for reasons that include reducing initial investment costs, new flexibility in business operations, better opportunities, and innovation. The transition to the cloud allows banks to focus on their core competencies, simplify processes, and invest in areas that produce higher returns, such as new products and services, allowing core banking systems to leverage the latest technology and focus on growth opportunities.


The advantages of moving to the cloud

It is important for banks to carefully analyze the costs and risks associated with transitioning data and functions to the cloud, always considering the protection of sensitive data in compliance with regulations, with the ultimate goal of preventing fraud and cybercrime and minimizing downtime while ensuring the presence of business continuity plans. One of the benefits of transitioning to cloud banking is certainly the streamlining of omnichannel communication. The term “omnichannel” generally refers to the ability to follow customers’ behavior, manage real-time communication on various contact points (online and offline), and adopt marketing and CRM strategies based on the single data as the primary factor. Given the amount of information that comes through multiple channels, banks can quickly become overwhelmed by the amount of data that needs to be processed and stored: therefore, cloud computing is an optimal storage solution since it can obtain virtually unlimited storage space receiving data from multiple sources. Generally, cloud computing offers greater flexibility for banks to meet their needs without having to invest in physical infrastructures to support their higher load levels. The cost savings are considerable, considering the opportunity to manage databases anywhere and at any time. Finally, cloud providers offer backup and emergency recovery features, and in addition to cost advantages, the transformation to the cloud is helping banks accelerate sustainability goals, innovation cycles, and the speed of commercializing new products and services.


Costs and effectiveness in the use of the cloud

With the advent of virtual storage, an increase in the adoption rate of cloud technology has been observed among major banks, which recognize its potential to simplify operations and provide a better customer service experience. Core banking systems are evolving into continuously connected extended networks, and therefore cloud resources are adapting to a new dimension of needs and requirements. From a regulatory standpoint, the use of the cloud allows banks to examine thousands of transactions per second, mitigating risks such as fraud and money laundering. Once it has been established that the cloud offers several advantages to banks and financial institutions, this sector proves to be slow in adopting the aforementioned technology, especially in Italy. Undoubtedly, service costs are significantly reduced, especially thanks to the pay-for-use model of public clouds, which makes it much more convenient for financial institutions to manage their performance, also considering that cloud services can be reduced or expanded based on the needs of the client company, implying movements within a more secure environment compared to most local systems and offering more levels of protection against data breaches. Finally, we see that today, any banking system appears as a complex combination of multiple applications and tools, often developed by third parties. Thanks to the use of the cloud, resources are generally offered as a “suite of services” that can be selected based on needs, guaranteeing a linear operation of the entire system.