The Future of Core Banking is in the Cloud
Blog, September 24, 2019
Alexandre Duret	– Product Director, Wealth
There is no doubt that the future of banking is with the cloud. As banks react to their fast-paced customers' increasingly demanding requests, only cloud-based systems can provide robust solutions which banks and finance houses need.
Temenos was the first vendor, in 2011, to put a core banking system onto the public cloud at a time when there were still sceptics who doubted the wisdom of the move. Since then, cloud providers kept enhancing their technology and widening their service offering. In parallel, we reengineered our software to deploy natively within a cloud infrastructure, in order to leverage these new capabilities for our clients.
Cloud-native is now one of the biggest trends in the software industry. It has dramatically altered the way we think about developing, deploying and using software products.
Cloud native is much more than signing up with a cloud provider and running your existing applications. It affects how you design, implement, deploy and operate all of your applications.
The Cloud Native Computing Foundation, an organization that aims to create and drive the adoption of the cloud-native programming paradigm, defines cloud-native as:
"Cloud native computing uses an open source software stack to be:
Containerised. All applications and processes are packaged in their own containers. This facilitates reproducibility, transparency, and resource isolation.
Dynamically orchestrated. Containers are scheduled and managed to facilitate resource utilization.
Microservices-oriented. Applications are cut into microservices. This increases the overall agility and maintainability of applications."
Not only are Temenos' products cloud-native, they are also cloud-agnostic. We want to give our customers choice so they can elect to host their banking applications on any of the major platforms: Amazon Web Services, Microsoft Azure or Google Cloud Platform. It gives them the ability to pick the provider that best fits their geographical needs, technology or price requirements. More importantly, it enables them to address growing regulatory concerns.
All over the world, the regulators have their eyes glued to the use of cloud in banking. Last year the Australian Prudential Regulation Authority (APRA) issued updated guidance on the use of cloud computing by regulated entities. It outlines a scale of risk for the use of cloud services to deliver different banking functions, as well as considerations before adoption of any particular technology or outsourcing arrangements.
Among the considerations are the "ability for the APRA-regulated entity to avoid a significant impact on business operations and meet obligations regardless of technology, people, process or service provider failure".
Under the regulator's outsourcing standards, banks must "develop contingency plans that allow for the cloud computing service to be provided through alternate means if required (e.g. transitioned to an alternative service provider or brought in-house), if required."
The key if you are a bank is to use multiple cloud providers, and make sure that you have strategies to be able to move your technology to another platform if you have an outage.
Banks also have to place a heavy emphasis on provider redundancy. Some of the larger financial institutions already have a multi-cloud strategy in place, for instance with their CRM on Azure, other banking applications on AWS and data storage on Google. Yet true redundancy implies that critical banking functions hosted in one cloud be backed up in another cloud. With Temenos Transact, we even demonstrated that our software can run active-active across two clouds, with zero downtime in the unlikely event that multiple data centers of one cloud provider become unavailable.
Cloud has become one of the most talked about topics in banking, especially since benefits include cost reduction, faster innovation, risk mitigation, and accelerated digitization of mission-critical services.
Cloud computing technology may have been around for a long time, but it is only recently that banks have started to truly understand that the cloud is a portal for change and innovation. Not only can banks reduce costs significantly on outsourcing or accessing infrastructure, but they can also get new initiatives to market faster than ever. Banks can even outsource the software itself to application software providers, making it easier to run, operate, and scale existing portfolios and new initiatives.
But it is not just direct IT savings powering the drive to the cloud for core services.
Banks are now expected to change at a ground-breaking rate. If consumer demand for seamless, ubiquitous service is at one end of the spectrum, regulations and new banking entrants add pressure from the other end. Banks are under pressure to innovate at scale and pace to be relevant and compliant, while increasing profit margins. Changing the core in a bank's production system can be slow, risky, and costly due to low levels of automation, insufficient test coverage, and weak processes to provision infrastructure on expensive hardware. Agile and Furthermore, banks are realizing they need to have their own unique propositions in the market, rather than following the "me, too" model of old.
Optimization via the cloud is achieved when all of the moving parts are harmoniously aligned. There is a major difference between being cloud-native versus running software in the cloud.
The nature of cloud native-software is about the very way a bank's software is constructed so that it is scalable as well as easily adapted and updated. Cloud-native software is constructed as a series of building bricks, rather than delivered as a cumbersome sealed monolith, and this is what gives impetus to getting new banking features in the hands (or the fingertips) of customers.
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