Jan 26 2023
Data Center

Why Banks Need More Flexible Infrastructure

The transition to the cloud is a complicated one in financial services, but the benefits of flexibility are clear.

Cloud computing is now a critical component of banking infrastructure. As noted by the What’s Going On In Banking 2022 report, 47 percent of banks use cloud computing, and 26 percent planned to invest in or implement some cloud services in 2022.

Other solutions underpinned by the cloud, such as robotic process automation, chatbots and machine learning, meanwhile, have been discussed at the board level as a way to improve service delivery and streamline operations.

The disconnect for many banks, however, is infrastructure. While they’ve moved specific applications to the cloud, most of their critical infrastructure still resides in core processors located in large operational data centers. While this provides control over existing IT frameworks, it naturally limits flexibility, in turn making it more difficult for banks to adopt and integrate new solutions.

Here’s a look at the current state of core infrastructure, what the move to more flexibility means for banks and what they need to consider before making the shift.

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The Limitations of Current Core Banking Infrastructure

Despite ongoing cloud uptake, many banks are still cautious about moving to the cloud. Even those that have made the move are often hesitant to shift critical applications out of familiar mainframes, especially if the applications aren’t exhibiting issues.

But cracks start to appear as data on the edge becomes critical. Consider a credit union running core processors at its primary urban office site along with cloud-based connectors at its satellite branches.

The branches are the edge: They collect transaction and customer data at the point of origin, and that data can be used to improve service delivery.

With critical apps located on mainframe processors, however, timely and relevant data must be sent, verified, analyzed and returned before decisions can be made. The longer this process takes, the more data goes from being timely and relevant to being outdated and inaccurate.

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From Fixed to Flexible: Finding the Best Fit

Flexible infrastructure offers a way for banks to better meet customer demands. For example, the adoption of multicloud services can help enable machine learning and artificial intelligence processes for behavioral analysis or geolocation tracking to pinpoint potential financial fraud.

Taking a flexible approach also makes it possible for banks to innovate. With on-demand access to computing resources, banks are better equipped to implement new solutions such as chatbots or robotic process automation without having to worry about conflict with legacy tools.

It’s worth noting, however, that shifting to more flexible infrastructure isn’t about keeping up with the Joneses. It’s about banks finding the approach to flexibility that works best for their business.

For example, banks running more than one critical application may be best served with a slow-and-steady approach to more flexible cloud services rather than attempting to migrate their entire application stack simultaneously. Those looking to launch a new ML, AI or RPA program, meanwhile, may be ideal candidates for more assertive cloud moves that see legacy apps remaining on mainframes while cloud-based infrastructure supports innovation.

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Considerations for Extending Bank IT Operations

The move to more flexible infrastructure doesn’t happen overnight, and it doesn’t come with a guarantee of success. To streamline core shifts, three considerations are critical.

  • Regulatory requirements. Banks must contend with both established and evolving regulatory requirements. For example, the Federal Trade Commission Safeguards Rule recently expanded reporting obligations to include companies that are only peripherally involved in financial transactions. As a result, banks must consider the regulatory impacts of moving to the cloud: Are virtualization and container solutions offered by providers sufficient to meet compliance expectations?
  • Complete cost analysis. Cost is also a critical concern. While flexible solutions offer pay-per-use models, they also come with ongoing monthly costs for services. Companies must also assess the cost of migrating current core processes to offsite solutions.
  • Infrastructure impact. The impact of flexible infrastructure shifts is far-reaching. As a result, all teams and departments potentially affected by the move should have a voice in the discussion before any decisions are made. Here, banks are often best served by industry partners that can help them navigate every step in the shift from mainframe to flexible.

As on-premises core processors reach the limits of their capabilities, banks need to consider more flexible infrastructure. From improving service to boosting innovation to future-proofing operations, flexible frameworks offer the way forward for financial institutions.

This article is part of BizTech's EquITy blog series. Please join the discussion on Twitter by using the #FinanceTech hashtag.


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