May 12, 2022 | Bucky Porter

Banks and credit unions need the cloud. Here’s why

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Bucky Porter, Financial Services Industry Analyst

Bucky Porter

Bucky has more than 20 years of banking experience in roles such as regional branch leadership, technology consultant and senior lending officer. Prior to being a Financial Services Industry Analyst at Windstream Enterprise, Bucky led a large branch network, built the bank’s small business banking sales strategy and worked on cross-functional marketing and product development at Simmons Bank.
Summary: The future of core banking is irrefutably cloud-native and now is the time to migrate away from legacy software. Here, we’ve outlined the benefits of all cloud-based solutions for core and key applications.

While financial institutions have been implementing cloud infrastructure for certain functions over the last few decades, many have historically left core transaction processing and other indispensable tasks up to legacy systems. But as cloud adoption steadily increases across all industries (90% of organizations now use cloud computing), coupled with the rise of digital-first Fintech companies and customer expectations for digital services, traditional banks and credit unions can no longer ignore the dire need to migrate to cloud systems.

Why is cloud adoption so important?

Proponents of cloud technology typically state the advantages of greater agility, scalability and flexibility. For financial companies, this might look like easier deployment of efficient processes or data-intensive applications. For consumers, they’ll see quicker transaction processing times and a more personalized customer experience.

Independent community bank Ephrata National Bank experienced the immense value of migrating to modern cloud connectivity solutions, including Software-Defined Wide-Area Network (SD-WAN) and High-Bandwidth Ethernet. As a 140+ year old institution, Ephrata National Bank recognized that their outdated and “not-cloud-friendly” Multiprotocol Label Switching (MPLS) solution was no longer keeping up with the bandwidth and resiliency demands required by modern-day banking.

Even with the laundry list of benefits, critics still claim that migrating to cloud systems can be riskier than legacy systems. This skepticism is increasingly becoming unwarranted as cloud infrastructure providers have continued to advance security offerings to fend off even the most determined hackers. Cloud migration benefits easily outweigh these fears, as well as the pain of moving thousands of software processes and customer accounts to a modernized environment.

Cloud-enabled core systems

Gartner defines a core banking system as “a back-end system that processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit processing capabilities, with interfaces to general ledger systems and reporting tools.” In simple terms, a bank’s core refers to the mission-critical systems that facilitate practically every transaction for a bank.

Core banking system conversion—with or without a cloud-based solution—is the most time-intensive and expensive system conversion for any financial institution. Add in the trepidation and sense of the unknown that “the cloud” brings it’s no wonder banks are dragging their feet. Yet, through all the apprehension, banks of all sizes are starting to progress their core systems to the cloud. These new, updated systems allow for banks and credit unions to be more efficient and provide more services—more specifically, allowing these organizations to perform more secure transactions, handle data better or support a specific type of business they want to run.

Furthermore, the advent of Application Programming Interfaces (APIs)—which allow for connections to and from a legacy or cloud-based core system from third-party apps—are being embraced by banks, which is another sign the industry is moving in the right direction.

Core, and beyond

There are plenty of other systems used by financial services that can and should be adopted—with or without the core system in the cloud:

  • Data platforms: Banks of all sizes are embracing the use of data analytics to determine everything from pricing of loans and deposits, to marketing offers to the right customer at the right time. However, data architecture in legacy systems is now very difficult to extract and manipulate, meaning that modernizing data systems is a must. Newer cloud data architectures allow for structured and unstructured data to be analyzed via predictive analytics and machine learning.
  • HR systems: Moving systems to the cloud offers many benefits for HR departments, by eliminating the excessive use of paper, enhancing user accessibility, increasing employee productivity, providing cost advantages and improving efficiency of integrations with providers that use cloud-based systems.
  • Accounting and finance software: As banks grow, cloud finance software systems allow for more seamless scalability and increased mobility, with access from mobile devices. Streamlined data management allows all data to be kept on one unified platform versus a variety of disparate systems and servers.
  • Customer relationship management (CRM): This software system helps business owners easily track all communications to manage and nurture customer relations. Cloud-based CRMs allow for the seamless access from anywhere—no more waiting to get back to the office to enter notes manually your sales call—and promotes collaboration.

The time is now

For financial institutions looking toward the future, core conversions and cloud adoption are just an inevitable part of business development and evolution. Cloud-native core banking software is here and will replace legacy software in most banks over the next 10–15 years. However, if your bank is hesitant to move your most critical system to the cloud, you can and should get started migrating many of your other applications to a cloud-based solution.

Implementing a cloud-native approach to core applications is the right approach, but making a start might feel intimidating. How should banks start migrating to an agile, efficient cloud-native approach? It begins with plenty of research and a detailed migration plan, which should cover everything from strategy to roles and responsibilities, technology and vendor selection and business requirements analysis.

One specific area of interest would be reviewing your bank’s network architecture to ensure you are providing customers and employees with efficient and safe access to the cloud. Windstream Enterprise offers a variety of secure and reliable digital banking solutions that help financial institutions be ready for whatever the future brings. Contact us to get started.

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Key takeaway: The future of banking is irrefutably cloud-native. Financial institutions must start their cloud migrations with research into the right technologies and vendors that can properly support their business and customers’ needs.
Financial Services Industry Analyst

Bucky Porter

Bucky has more than 20 years of banking experience in roles such as regional branch leadership, technology consultant and senior lending officer. Prior to being a Financial Services Industry Analyst at Windstream Enterprise, Bucky led a large branch network, built the bank’s small business banking sales strategy and worked on cross-functional marketing and product development at Simmons Bank.