Digital Banking And The Power Of The Hybrid Cloud

Hybrid cloud architectures are giving financial institutions (FIs) flexibility and scalability without putting all of their digital eggs into one core system basket, as it were.

PYMNTS’ April 2020 Digital Banks and the Power of the Cloud Tracker®, a NuoDB collaboration, is an immersion into how banks and FIs that have moved to hybrid cloud environments report outperforming competitors. And yet adoption is lethargic up to now.

“Many [FIs] have taken measured approaches by shifting to hybrid cloud models, wherein they rely on a combination of privately held and public cloud services that allow them to reap benefits while mitigating risks,” the report states. “These efforts seem to be paying off, with 87 percent of FIs that utilize hybrid architectures reporting that they outperform their competitors.”

The irony is that “…FIs seemingly face a long road to adoption, with 80 percent of them still utilizing proprietary architectures to varying extents,” according to the report. That will move faster now, like a lot of things that were going at their own pace until the pandemic hit.

Heads in the Cloud

The inaugural 2020 Digital Banks and the Power of the Cloud Tracker® notes that the hard truth is that many FIs continue to lag in tech, at a time when risk is rising.

Not exactly a formula for success. Digital makeovers require a fresh mindset.

“Before banks embark on digital transformations, they must overcome some significant hurdles,” Ariff Kassam, chief technology officer at NuoDB, told PYMNTS. “First, they need to re-engineer their cultures and make the willingness to adopt new technologies, the confidence to run in the cloud and the desire to move fast with a DevOps mindset part of their ethos.”

“Next, [they must] gain confidence by developing and deploying a few small new applications or services in the cloud,” he said. “With this experience, they then need to invest in extreme diligence at all layers of the technology stack, from infrastructure to app, to identify how the legacy systems can be upgraded, decoupled and moved into the cloud incrementally.”

Given that within four years, “approximately 3.6 billion consumers will access digital banking services by 2024, up from 2.4 billion in 2020,” as the report states, FIs have some catching up to do in terms of offering real-time payments, card controls and other hot digital features.

“Forty-three percent of U.S. banks still rely on COBOL IT systems – which are based on the COBOL programming language that originated in 1959 – for their core banking needs,” the report notes. “This shows that banks’ success hinges upon beginning their digital transformations by reevaluating core infrastructures.”

Ready or Not

The decision time has arrived for the digital transformation of FIs. Between the pandemic disruption and everyday market dynamics, digital banking is here – ready or not.

“FIs have several options when upgrading their core banking infrastructures, but transitioning to the cloud has proven to be one of the most advantageous,” the report states. “Cloud environments have seen increased development and usage in recent years as data can be kept secure off-site, which protects it from fraudsters while allowing easier access.”