Banks’ great “core to cloud” migration is finally under way

April 13, 2022 Windstream Enterprise 5 min

Editor’s Note: For years, many banks have had the attitude “if it’s not broken, don’t fix it” when it comes to tech upgrades. But banks can’t afford to have that attitude anymore as digital-first fintech companies are taking the industry by storm, setting a new standard for the digital services customers can expect from their financial institutions. Traditional banks which have stalled migrating to cloud-native systems need to start acting fast if they want to keep up with consumer demand for digitization

Summary: Banks have been reluctant to move away from legacy technology, but a migration is happening as the industry experiences a sea change accelerated by the pandemic and the demonstrated ability of challenger banks to scale rapidly using the public cloud.

While banks’ customer-facing systems and many of their enterprise applications like HR are increasingly cloud-native, the same can’t be said for the plumbing. In the back office, many of the core technology systems that process debits and credits and manage payments still sit on mainframes, rather than in the sleek server farms that power most of the digital economy.

Digital-native fintechs have shown they can move much faster than incumbent banks to launch and tweak consumer products thanks largely to their embrace of cloud technology.

Getting your paycheck on time or making your mortgage payment still depend in part on a spaghetti tangle of network connections that only a dwindling number of computer programmers (e.g., COBOL and assembler specialists) know how to modify and maintain.

Banks have been reluctant to move away from this legacy technology (the software can often be decades old) for two simple reasons: it works and it’s familiar. But resilience and habit may no longer be enough to prevent a wave of core migration to the cloud. Digital-native fintechs have shown they can move much faster than incumbent banks to launch and tweak consumer products thanks, in large part, to their embrace of cloud technology.

Without the public cloud, buy-now-pay-later brands like Afterpay, payments processors like Stripe, and challenger banks wouldn’t have been able to scale the way they have. The early months of the COVID-19 pandemic also gave many traditional banks a crash course in cloud-based improvisation and many executive teams quickly got used to launching new products and processes in weeks rather than months or years.

After years of inertia where the technology focus has been on enabling microservices and APIs to create agility without touching the core systems, the last few months have seen a sea change. Far more banks are now willing to tackle the spaghetti and begin moving their core operations to the public cloud. This great migration will have setbacks and stumbles but, ultimately, will reshape banks’ business models and how they serve their clients.

The public cloud for banks reaches maturity

A key factor causing “core to the cloud” to reach a tipping point is that cloud-native core banking software applications are reaching a level of maturity where the journey is worth the effort. They can’t yet replicate the functionality of the traditional mainframe systems across all products, but the migration benefits now outweigh the pain of moving thousands of software processes and millions of customer accounts to a completely new environment.

In parallel with the maturation of the software, the cloud infrastructure providers have continued to upgrade security and resilience to the point where it becomes hard to reject public cloud based on operational or security risks. Cloud providers now aim to assure bank clients that they can handle even the most extreme spikes in transaction volume and repel the most determined hackers. The cloud providers also understand the economic prize represented by the huge workloads currently processed by bank mainframes and are incented to do everything necessary to enable core system migration.

But technical maturation alone wouldn’t be enough to drive the “core to the cloud” migration we are beginning to see. That pivot has also required the competitive pressure that has come from legacy banks watching fintechs and big technology companies delight customers with new products that are often just legacy bank services repackaged with slick interfaces (think Robinhood democratizing stock trading by lowering barriers through $0 commissions as well as buy-now-pay-later firms incorporating layaway into checkout).

These firms are increasingly forcing banks to either take just a back-office support role or commit to innovating as quickly as they do. Both choices now demand the rapid deployment of new code and new products, something that cloud-native development makes much easier.

Aging systems and regulatory pressure

The starting pistol for the great “core to cloud” migration may well have been fired last September when JPMorgan Chase pledged to move its U.S. core consumer systems to the Thought Machine platform. The chief reason, its head of product said, was the ability to innovate to meet customers’ needs. But there are also some less obvious reasons for the shift.

An Accenture survey shows momentum from banks already migrating or planning to migrate, with executives reporting they plan to move at least half of their core workloads to the cloud—most within the next five years.

As mainframe systems age, the pool of technical talent that understands these systems is shrinking and aging as well. At the same time, cloud talent is multiplying and evolving to embrace innovations such as web3, a term for a new decentralized version of the internet based on blockchain.

Finally, regulators are now increasingly seeing decades-old core systems as a potential business risk and pressuring many banks to upgrade for security and resiliency reasons (although to be fair, other regulators like those in the UK are still questioning whether the cloud is secure enough for core banking).

As the “core to cloud” migration gets under way, what can consumers and industry watchers expect? First, the dominos may begin to fall relatively quickly. In a recent report, Accenture’s Michael Abbott, who leads the global Banking practice, highlights the momentum shown in a new survey of 150 executives from banks already migrating or planning to migrate to the cloud. More than eight in 10 of those surveyed said they plan to move at least half of their core workloads to the cloud—most within the next five years.

To show their commitment to the journey some banks are taking stakes in cloud-native software firms—such as Italy’s largest bank by assets, Intesa Sanpaolo, which not only selected Thought Machine to power its digital banking platform but also made a sizeable equity investment. In another interesting development, U.S. challenger bank SoFi decided to buy outright a cloud-based core banking platform to power its own operations and also improve its banking-as-a-service capability.

Down the road, customers will see more product innovation from their banks as the cloud makes it easier to develop, test, and deliver new products and services. Some will be delivered through the bank’s own distribution channels, but increasingly they will also be embedded in everyday online activities, such as buy-now-pay-later, or resold through partnerships with consumer and technology companies.

The great “core to cloud” migration won’t be an overnight success, but it now has a sense of inevitability to it. It won’t be long before both customers and bank shareholders benefit from the move.

This article was written by Alan McIntyre from Forbes and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to

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Key Takeaway
More traditional banks are now willing to begin moving their core operations to the public cloud, a process that ultimately will reshape banks' business models and how they serve their clients.

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