Jan 05 2021

Does the Cloud Make Sense for Critical Bank Systems?

The cloud offers advantages in resource speed and scale, but security remains a sticking point for banks.

Digital banking has a security problem, but it’s mostly one of perception. Recent survey data shows that 54 percent of clients feel that digital banks are “riskier” than brick-and-mortar businesses, and 48 percent said they would limit the amount of money they deposit into digital banks.

This creates a paradox for banks looking to drive revenue and stay relevant as pandemic pressures persist. While financial cloud computing deployments are “inevitable” to meet consumer expectations around increasingly personalized and on-demand services, security concerns often keep banks from fully committing core operations to cloud-based frameworks.

What’s the solution? How do banks embrace the cloud without alienating customers or risking core data? Here, a three-step process is critical: Financial firms must first evaluate, then prepare and finally implement cloud options to streamline operations without increasing risk.

Evaluation: Considering Key Benefits of the Cloud

As noted by Deloitte, cloud computing now enables “critical sources of value” for financial institutions, including enterprise synchronization, business innovation, operational resilience and new talent acquisition.

MORE FROM BIZTECH: Learn the 2021 tech trends to watch in financial services.

Collectively, public and private clouds offer banks the ability to access critical resources on demand rather than overspending on extra capacity to meet projected needs. Compute power, storage and speed can be adjusted as required to help manage total cost of ownership and reduce the chance of cloud sprawl.

But the sheer volume of potential benefits demands a period of evaluation before banks begin cloud migration. While all cloud solutions offer some advantages, banks are better served finding combinations that best meet current needs. For example, firms experiencing a sudden uptick in digital account creation should consider spending on secure cloud storage that both safeguards client data and improves data access speeds.

Preparation: Secure Core Systems Before Moving to the Cloud

Once banks have identified where cloud services make sense in their organizations, it’s time to consider core systems. Research firm Gartner defines a core banking system as “a back-end system that processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit processing capabilities, with interfaces to general ledger systems and reporting tools.”

While all banking infrastructure requires security, these core systems take priority. Banks need to ensure operations are uninterrupted and uncompromised, starting with a comprehensive security assessment of existing systems. With 43 percent of banking systems still built on digitally ancient code like COBOL, firms must identify legacy limitations that could negatively impact overall security.

It’s also critical to consider the functional advantage of security separation. New cloud solutions now make it possible to keep mission-critical data stored onsite while farming out compute processes to secure providers, in turn limiting regulatory risk.

Implementation: Taking an Incremental Approach to the Cloud

With operational advantages identified and core systems considered, banks can begin their move to the cloud. Here, there’s a simple secret for success: the incremental approach.

As digital banking adoption continues to surge, this can be a tough ask, as banks want to capitalize on changing market forces immediately, concerned that if they don’t, they’ll be left behind. According to TechTarget, however, prioritizing speedy shifts can backfire. If apps aren’t ready to make the move or staffers aren’t comfortable with new cloud-based tools, potential advantages may be lost to performance issues or existing employee preferences.

The incremental approach both compartmentalizes cloud services and ensures they’re comprehensively tested and explained before implementation. In practice, this means taking time to gather staff feedback, demonstrate how new systems work and then move one workload at a time. Once teams become familiar with new cloud solutions and metrics reflect consistent results, banks can make their next moves. It’s also a good idea to start with noncore, low-risk systems to minimize the chance of digital disruption, then ramp up adoption as required.

Cloud adoption is inevitable for banks, but the task of shifting core systems to the cloud may seem daunting. To manage migration at scale, financial firms are best served by a three-step approach that prioritizes infrastructure evaluation, security preparation and incremental implementation.

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