Cloud-Native Banking Presents Opportunities for Core Banking Innovation

The modernization of back-end systems represents an ongoing challenge for banks, especially as they seek to introduce new digital-first services.

The options used to be stark: Rip and replace, or get the most mileage of the legacy systems already in place.

In recent years we’ve seen the continued emergence of cloud-core banking systems used in the service of conducting daily banking activities, while future-proofing financial institutions for the changes to come — through API connectivity — particularly in instant payments.

Private and public cloud setups (not hosted on the premise of the companies themselves) connect financial services companies with providers and applications that handle everything from payments processing to reporting to compliance. Tied to all those functions are cloud ledgers, which record the transactions themselves automatically.

The shift to the cloud is especially timely, given the rise of embedded payments and embedded lending. Those two trends, along with virtual card issuance, can create new revenue streams for digitally minded enterprises.

From Account Opening to Money Movement

The most recent (and still ongoing) earnings season has shone a spotlight on the demand for new channels and enablement of specific banking products and services.

NCR Voyix, by way of example, saw 7% growth in its digital banking segment revenues and has taken note of its cross-selling opportunities with financial institutions in the segment. Registered users tied to its digital banking operations were up 5% to 28.5 million.

The company noted in a May 9 filing with the Securities and Exchange Commission: “We serve banks and credit unions in the United States with our cloud-based software solutions including account opening, account management, transaction processing, imaging, and branch services, among others.”

It also said it offers unified banking solutions across digital and in-branch settings.

Elsewhere, FIS detailed during its investor day this month that, per Chief Technology Officer Firdaus Bhathena, the cloud is helping speed money movement, and has been part of the company’s ambition to forge what he termed “a robust FinTech platform.”

“About 30% of our workloads right now are in the public cloud, and a full 90% are being run in our combined public and private cloud environments,” he said.

John Durrant, president of the banking solutions unit, said the company’s large bank digital business is growing at double-digit rates, and there are eight banks in a pilot for its new mobile product, a number that should ramp up materially.

The banks themselves are getting into the business of core banking and extending cloud-based solutions to their own client bases. Citi Ventures announced a strategic investment in Tuum, a core banking provider, in March. Fiserv and Central Payments are collaborating to provide FinTechs, enterprise businesses and payment facilitators with the functionality to launch new financial products.

At the beginning of the year, Visa finalized its acquisition of Pismo, adding the latter’s global cloud-native issuer processing and core banking platform to its operations. The firms said they will together provide clients with core banking and card-issuer processing capabilities across all product types via cloud-native APIs.