Digital banking tools’ use continues to rise as the COVID-19 pandemic wears on, and mobile banking usage in the U.S. has increased by 50 percent since the beginning of the crisis, for example. The rising demand worldwide has required FIs to manage a flood of new requests and transactions on their online platforms, and many legacy institutions are finding it difficult to keep up. More than 3,000 customers reported issues with United Kingdom-based Lloyds Bank’s mobile and online banking services on June 1, for example, while 1,780 customers took to Twitter and customer service channels to discuss similar outages affecting FI Halifax’s services.
Such outages are frustrating to consumers who cannot head to brick-and-mortar branches during the pandemic, but they are just the latest in a series of similar problems FIs have faced. Halifax and Lloyds experienced large-scale online platform crashes in January, for example, and British FI TBS confronted technical glitches in November 2019 following a 2018 IT systems crash. These issues reveal that many FIs rely on legacy core banking infrastructures that are struggling to adequately manage online transactions, with one recent study finding that 55 percent of legacy banks still lack “digital maturity.”
Banks working to swiftly serve consumers during the pandemic are eager to upgrade their solutions to reach that maturity, however, and some are migrating to the cloud to handle the recent uptick in online transactions as well as the flood of sensitive data across their platforms. The following Deep Dive explores the challenges banks typically face when migrating to the cloud and how the pandemic’s impact on consumers’ banking needs is pushing FIs to quickly solve such hurdles.
A look at cloud migration's history
FIs’ interest in moving to the cloud has been building for some time, especially given that relying on their traditional infrastructures can cost them. FIs have felt the financial impacts of outdated core banking systems since 2012, when banks such as JPMorgan Chase and the Royal Bank of Scotland lost millions due to collapsing online networks. Such issues have prompted these and other banks to build or migrate to solutions that use public cloud systems for at least some of their online services, with 74 percent of financial services companies in 2017 noting that they were using hybrid cloud models to some extent.
The share of FIs that are actively utilizing this technology for their core banking systems remains low, however, partly because migrating to the cloud can be both costly and complicated. One report found that 33 percent of FIs see their outdated IT systems as significant barriers to innovating their online operations, and another survey revealed that core banking replacement initiatives cost an average of $350 million and can take more than 5 years to fully implement. These time constraints and expenses are significant hurdles for many FIs, especially small to mid-sized banks with modest budgets, and could explain why some banks have chosen to build upgraded consumer-facing services rather than address the limitations of their platforms’ underlying infrastructures. The COVID-19 pandemic may be running out the clock on that approach, however.
The COVID-19 cloud effect
Consumers have become reliant on digital banking tools during the COVID-19 crisis. This shift has been somewhat expected as the industry has recently seen large-scale digital growth, with one March report predicting that U.S. digital banking usage will increase 54 percent by 2025, for example. The rush to digital solutions amid the pandemic could have deeper implications for banks, though, as customers begin expressing more frustrations with service glitches. Many are unwilling to accept inadequate online account access, and 41 percent of business banking customers claim they are looking to switch FIs because of poor service during the pandemic.
Consumers are reporting other struggles stemming from banks’ legacy systems, including issues receiving unemployment checks. Forty-three percent of banks still run on COBOL software, even though the computer programming language is over 60 years old, presenting problems for customers. Those withdrawing cash or making routine transactions at ATMs could also experience strains due to outdated systems: physical mainframes support 95 percent of such withdrawals.
Addressing these frictions is more important than ever for FIs, and this urgency is putting a spotlight on the benefits of migrating services to the cloud. Cloud-based systems have several key advantages over legacy core banking infrastructure that relies on physical servers. The former can handle greater volumes of data and allow banks to test innovative new tools before bringing them to market. These technologies also enable FIs to access the information necessary to provide products such as loans to customers experiencing financial hardships during the pandemic, for example. Cloud-based tools can also expedite approvals for daily payments and transactions, allowing businesses and consumers to send and receive funds as necessary.
The COVID-19 pandemic has laid bare that the patchwork approaches many legacy FIs are employing to tackle expanding digital banking volumes are no longer enough. These banks will need to quickly address the frictions stemming from their outdated core banking systems, lest they risk losing customers to more innovative, cloud-savvy competitors. Migrating to the cloud — and leaving physical mainframes grounded — could help them address their customers’ needs now and in the future.