On paper, moving to a cloud-native core banking system may seem like an easy decision. 75% of Banking Leaders we surveyed said that cloud-based banking platforms could help them release and update products faster, improve the customer experience, and become more efficient. 

Despite this, there are several obstacles that hold banks back from making the move. The top concerns include control over customer data, potentially regulatory issues, and a desire to keep systems in-house. These blockers, which we will unpack in this article, are slowing down banks’ transformation projects. 

Core modernization is just the start 

One misperception banks have about modernizing their core banking systems is that they often view replacing their core as the end goal. As Richard Caven, Worldwide Banking Specialist at AWS, explained at a recent 10x webinar: “Anybody who thinks that moving to the cloud is the entirety of their digital transformation journey needs to have a bit more of a think about how the technology is used in their organization and the benefits that they can get out of it,” said Richard.   

Cloud-native core banking platforms are an enabler and the purpose of a transformation project should be to make demonstrably better for customers. Banks that are considering moving core banking systems to the cloud need to have a strategy that places customers at the center of any transformation plans. 

“You don’t get competitive advantage from the core in and of itself—what you get competitive advantage from is the customer experience and the way you’ve defined your product and the quality of your app,” says Okan Ozaltin, Chief Product Officer at 10x. “The core is just a utility. Focus your resources on what makes you different.” 

This means banks need to rethink their mindset about how to approach digital transformation. “It should be product manager-led, not hardware engineering-led.

Okan Ozaltin Chief Product Officer at 10x Banking

Why banks need to upgrade their core 

But banks can’t change that mindset when working with their existing core banking systems. Many traditional banks still have the bulk of their operations sitting on legacy mainframes, which are expensive to run and maintain, and difficult to update. This slows digitization and acts as a handbrake for innovation. 

“Banks need to focus on how they can be more agile,” says Okan. “It takes teams too long to provision new services or to make changes to backend systems.”  

This matters now more than ever because neobanks and big tech firms are able to innovate much faster and respond to market events and shifts in near real time.  

“If every other bank is managing to be agile and risk managed and you are not, then you’re going to be outpaced by the competition,” said Ozaltin. 

Take challenger bank Revolut, for instance. When it started out in 2015, it was a simple prepaid debit card. Now it offers a range of financial services, from crypto and stock trading to personalized services such as early salary pay. And most recently, received its UK banking license.

“That speed of innovation is terrifying for financial institutions which take years to get new products to market,” says Okan. “Something needs to change.” 

Enjoying the blog? Download our cloud-native core banking migration whitepaper, in collaboration with AWS and Cognizant, today. 

By moving to a cloud-native core banking platform, banks can start to address some of these issues. First, they can develop and build products at speed; something that might have taken months can now be built in a matter of hours. 

Second, with a SaaS-managed platform, it significantly reduces the total cost of ownership; legacy systems require experienced engineers to maintain as the underlying tech ages, weighing on IT budgets. And third, it frees up resources for innovation. Outsourcing or abstracting some of the day-to-day complexity and management means banks can focus on what matters most: delivering banking services and experiences that customers love. 

And the benefits don’t stop there. A cloud-native core enables banks to access data in real time, allowing faster decisioning and providing more tailored and point of need customer experiences and value-added services. Cloud-native cores are also typically consumption-based, meaning banks only pay for what they use, enabling them to scale capacity as needed. 

Security in the cloud 

Given the critical importance of keeping customer and transaction data safe, there’s still some anxiety about security when using third-party technology providers, particularly for some traditional banks who have historically done everything in-house. 

Yet many of the concerns banks have about using cloud providers are no different than the worries many enterprises had when they started moving to the cloud 15 years ago, says Okan —concerns that proven unfounded. 

Most enterprises have learned that the cloud is a more secure place, not a less secure place. The security standards in the cloud would be cost prohibitive for most businesses to do on-premises themselves.

Okan Ozaltin Chief Product Officer at 10x Banking

Maintaining on-premise data centers can also give banks a false sense of security that their customer data is safe. 

“It then comes down to how good are your team; how good are they at implementing all the protective measures; and how much testing do they really do to ensure those protective measures are in place and working as they should?” says Okan.

Using a hyperscale cloud platform such as AWS is more secure than any in-house team, while a SaaS-managed core like 10x's world's first meta core, offers an additional layer of security, delivering a multi-layered approach that would be expensive and time-consuming to replicate in-house. 

“Banks need to be thinking about taking advantage of what are now fairly established technologies—the cloud isn’t new,” says Okan. “There is a lot of science and discipline around how you secure and deliver services at a fast pace in the cloud, and there’s a lot of best practice that can readily be adopted.” 

Staying ahead of the competition 

Ultimately, by migrating to a cloud-native core banking platform, banks can release products and updates much faster to market which is currently unattainable with legacy technologies. This provides a competitive advantage.  

“10x has built its service into what is the holy grail in banking—you can do a proof of concept of a new banking product and tweak things very easily with no coding support and play with it and understand what the market is looking for in ways that you’ve never been able to do before,” explains Okan. 

This allows banks to trial new products and services without a huge financial commitment. By contrast, to run a proof of concept with legacy banking infrastructure means having to configure everything in their own data centers—a timely and costly exercise. 

“You can’t just press a button and get going with a legacy system,” says Okan. “All of the things that you see in other industries—running proof of concepts, doing A/B testing—these are things that banks have really struggled to do in the past, that now become possible with a cloud-native core.” 

Download our migration whitepaper to learn more