Cloud computing has become a pervasive force in today's digital landscape, transforming industries. The Financial Services Industry (FSI) is no exception, with shifting customer expectations and rising competition from digital-only neobanks. Trends like the advent of AI, increasing focus on customer-centricity, and microservices are profoundly contributing to the modernization of core banking solutions.
While FSI has traditionally approached cloud adoption cautiously, focusing on native cloud application development and Software-as-a-Service (SaaS), the maturation of cloud technology is prompting a reevaluation of core processing in the cloud. The cloud-based digital core banking systems resolve the challenges of these traditional approaches, i.e., limited scalability, production readiness, customization, and control over the underlying infrastructure.
Core banking system providers can ensure better alignment with the goals of digital and global banking initiatives by leveraging the cloud's high availability, API-driven architecture, and streamlined deployment using DevOps. Adopting cloud-based solutions among enterprises is expected to drive the global core banking software market to reach $47.37 billion by 2030, with a projected CAGR of 18.4% from 2023.
Let's discover how cloud-based core banking systems facilitate complete digital transformation for next-gen banking experience and the migration approaches to accomplish that.
8 Ways Cloud-based Core Banking System Supports Complete Digital Overhaul
Here are the critical qualities of cloud-based CBS that play a pivotal role in shaping the future of digital banking:
Security and Availability
Cloud-native core banking system providers own secure network infrastructure that offers enhanced protection compared to monolithic, on-premise data centers. Public cloud environments provide exceptional information resiliency and privacy, ensuring minimal data loss and corruption. With stringent security standards and robust identity and access management solutions, cloud-based CBS platforms enable fine-grained control over data and reduce the risk of penetration attacks.
Faster Solutions Delivery Via Microservices and APIs
Microservices and APIs within cloud-based core allow banks to develop and integrate new solutions quickly, establishing new channels and seamless connections with partners, regulators, and various internal departments. Such core banking transformation replaces outdated legacy systems with service-oriented architecture (SOA) and optimized core applications. It enables rapid delivery of digital banking solutions by eliminating the barriers created by silos of legacy product-based systems.
Data-driven Hyper-personalization
Banks can leverage the power of cloud-based digital core banking systems to analyze vast amounts of customer data using AI and ML-driven processes. It allows them to understand customer patterns, credit histories, and lifestyle choices, creating realistic data models for personalized financial recommendations. These data-driven cloud applications in CBS can cater to the preferences of millennial and Gen Z customers who predominantly engage with digital channels, delivering tailored services that meet their evolving needs.
Multi-currency Accounts and International Transfers
Cloud-based core banking solution allows seamless integration of various currencies into a unified account structure, providing businesses with the convenience of managing multiple currencies within a single platform. Cloud infrastructure's scalable and flexible nature enables seamless integration with global payment networks, real-time transaction monitoring, and automated compliance checks. It streamlines international transfers significantly by offering transparent and reliable cross-border payment capabilities, eliminating hidden fees, and reducing processing time.
Virtual Cards and Contactless Payments
The cloud-based core banking solution is the centralized repository of customer accounts, transaction data, and balances. It interacts with digital solutions via APIs to retrieve relevant customer information, initiate transactions, and update account balances in real time.
This integration allows banks to generate virtual cards, link them to customer accounts, synchronize transaction data, and process payments seamlessly. The cloud infrastructure also ensures robust security measures, such as tokenization and encryption, while implementing Near Field Communication (NFC) technology to safeguard contactless payments.
Consistent Multi-channel Experience
Cloud-native core banking system providers leverage robust APIs to enable seamless integration with different digital channels, enabling a unified experience. These APIs facilitate secure and efficient communication between the core banking system and various front-end applications, such as mobile apps, web portals, and chatbots, ensuring consistent functionality and data exchange.
Besides, cloud-based CBS employs scalable infrastructure, enabling banks to handle high volumes of customer interactions across channels without compromising performance. It ensures a smooth and uninterrupted user experience, enhancing customer satisfaction and engagement.
Improved Level of Disaster Recovery
Cloud-native core banking system providers continuously assess their products to identify potential security vulnerabilities and promptly deliver updates. It ensures high resilience and availability with a global, world-class infrastructure to minimize the risk of data loss or service disruptions in natural disasters, system failures, or cyber-attacks. Such cloud platforms often obtain certifications like ISO 22301 (Business Continuity Management) and SOC 2 (System and Organization Controls), which are vital in demonstrating their capabilities for disaster recovery in banking.
Opportunities for Innovative Fintech Solutions
Leveraging microservices architecture and containerization technologies such as Docker and Kubernetes, a digital core banking system enables modular development and deployment of banking services. For instance, a fintech company specializing in peer-to-peer lending can leverage cloud-based CBS to develop an innovative lending platform. Using APIs, cloud-based CBS seamlessly integrates with external data sources, credit scoring services, and payment gateways, enabling real-time loan origination, instant credit decisions, and automated fund disbursement.
Transformation Approaches for Migration to Cloud-based Core Banking
Here are three primary methods to migrate core banking applications from legacy systems to the cloud:
Simple Application Migrations
This approach is suitable for non-critical back-office applications, such as ERP, HR, email, and collaboration platforms, where the cost of rewriting for the cloud outweighs the benefits. These applications can be migrated to the cloud with minimal code modifications.
Component Re-architecture or Replacement
This approach requires banks to break down monolithic systems into smaller subcomponents based on specific business functions. Banks can achieve greater efficiency in delivering critical functions such as customer management, catalog management, pricing, and analytics, by re-architecting or replacing these subcomponents with cloud-native microservices-based solutions. It is an ideal approach for upgrading applications that have outlived functionality and are becoming expensive to maintain on legacy technologies.
Refactor
Refactoring involves the automated porting of applications to the cloud through code conversion tools. This approach is particularly suited for applications that require rebuilding on the cloud and must be migrated from existing mainframe technologies in the short run.
Break Free from Legacy Core: Empower Your Bank’s Digital Future with Cloud-based CBS
As customer expectations evolve and competition intensifies, embracing cloud technology becomes crucial for staying ahead. Cloud-based digital core banking solution offers unparalleled benefits, from high availability to international transfer and multi-channel experience. These qualities of the digital core banking system provide an opportunity to attract and retain tech-savvy customers and capitalize on emerging technologies to secure a strong market position. The time to embrace the power of cloud-based core banking is now, as it has become the cornerstone for banks to drive long-term profitability.
Panamax’s Core Banking System is a cloud-native, real-time solution that helps you drive customer loyalty and be future-ready with an agile, interconnected, and efficient banking model. Request a demo today and embark on a transformative journey toward digital success.
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