By Bucky Porter, financial services industry analyst for Windstream Enterprise

For years we’ve been waiting for the banking business to reach a tipping point, where members of the industry’s mainstream set aside their allegiance to legacy technology and begin the long-contemplated Great Cloud Migration in earnest.

That moment appears to have arrived, with a wave of institutions now committed to moving their core business systems to the cloud. In a recent report from McKinsey, 54% of the C-level banking execs it surveyed indicated they expect their companies to shift at least half of their workloads to the public cloud by 2025. Early adopters already are reaping the benefits of cloud migration, the report notes. A European bank was getting the same output level with 20 to 30 percent smaller teams after onboarding them to the cloud, for example, while a bank in Asia that migrated more than half of its workloads to the cloud is now able to develop and launch multiple new products rapidly, at scale.

Banks “see a strong business case for mainframe migration,” Accenture observes in its own findings on bank cloud migration, with 62% of the 150 global banking execs it surveyed indicating they expect their migration investments to yield an internal rate of return greater than 10%, and 77% expecting to recover their mainframe migration investment within 18 months. Among the benefits that institutions stand to reap from a move to the cloud:

• Savings on hardware and maintenance costs. Not only can maintaining aging data centers, server farms and other legacy hardware and systems be expensive, it’s becoming more difficult to find parts and people with the know-how to service and repair outdated technology.
• A lighter IT and infrastructure burden. A move to the cloud relieves banks of the hassles associated with updating legacy network infrastructure across branches. What’s more, many cloud-based networks and systems can be monitored and managed with fewer people using today’s simplified dashboard-based admin tools.
• Greater collaboration and productivity across the enterprise lead to a stronger customer experience. A flexible, scalable cloud-based network such as SD-WAN accommodates and secures remote work and applications out to the network edge, giving employees access to the tools and trusted data they need to collaborate in hybrid work environments in order to deliver a better customer experience across channels.
• A catalyst to the creation of business ecosystems. As banks rely more heavily on APIs (their own and third-party) to deliver the services customers want, they’re building cloud-connected ecosystems with fintech companies and other service providers.
• Better insight from real-time data. With their systems integrated in a cloud environment, banks can be more responsive to customers because they have a unified, real-time view of the customer journey. Seeing network data in real time also enables banks to more readily identify and respond to potential fraud and security issues.
• More accurate and timely reporting. A move to the cloud reduces the errors and lag time that banks often must contend with when batch-processing data across multiple siloed systems.

You can’t just flip a switch and expect a cloud migration to yield these benefits, however. Core banking system conversion could well be among the most time- and resource-intensive system conversions a financial institution undertakes. Getting it right takes on-point planning and execution, based on these five steps:

1. Assess readiness. The process starts with an objective, detailed appraisal of the current state of your tech infrastructure — network, hardware, software, security, vendor relationships, etc. To what extent are the various elements of that infrastructure, and the people you have onboard to administer it, cloud-ready?
2. Lay the groundwork. Now comes the all-important planning, positioning and due diligence part of cloud migration. Sit down with the relevant decision-makers and teams to develop a working list of the solutions you’ll need to invest in for the migration, prioritizing the must-haves and the nice-to-haves. Create a detailed migration plan, which should cover everything from strategy to roles and responsibilities, technology and vendor selection, and business requirements analysis. Conduct plenty of research and evaluate multiple solution options, including those offered by your current core vendor(s), then determine the solution that best meets the customer needs and the bank’s budget. While you’re doing this, also do some housekeeping, cleaning up your customer data for migration and examining your product set to identify areas where it can be streamlined (there may be redundancies due to a merger/acquisition, for example). Also, start building your in-house skillset with people who are well-versed in cloud-based environments and systems. This likely will involve both upskilling existing employees and hiring new ones.
3. Pick a cloud. To migrate to the public cloud or a private cloud? Essentially, public clouds are shared by multiple entities, while private clouds are exclusive to one organization. If the private cloud is a single-family home that you own, the public cloud is an apartment you rent within a building that contains multiple apartments, on land you don’t own. Determining which is the better option for a bank comes down to factors like cost (private tends to cost more than public), security (the perception is that private clouds are more secure, though that’s debatable), and latency.
4. Be methodical in your migration approach. Where does one begin a migration to the cloud? Would it be best to shift all core systems at once or take it in stages? Or to take a conservative approach and test the waters by migrating certain non-core systems (HR for example), or a certain subset of applications? How a bank answers these questions depends largely on the demands of the current customer base and the target customer base, because ultimately, the goal should be to build a cloud ecosystem around the customer. It also depends on factors like budget, the IT talent you have on hand and the organization’s appetite for managing change. It could make sense to use a “sidecar” approach, where new customers are handled by a new cloud system, with other customers remaining on the legacy system until the organization gains enough comfort with the new system to migrate everyone.
5. Don’t skimp on security. In a recent report from VMWare, 74% of financial security leaders said their institution had experienced one or more ransomware attacks in the past year. As frequent and sophisticated as cyberattacks have become, modern financial services companies need modern cybersecurity tools to ensure the safety of their cloud networks and data. Today we’re seeing banks embrace a multilayered security model known as Secure Access Service Edge (SASE), which includes zero trust and other strategies to protect a cloud network and the assets and data attached to it.

Author Bio:

Bucky Porter is a financial services industry analyst for Windstream Enterprise, a leading managed communications service provider. He has more than 20 years of banking experience in roles such as regional branch leadership, technology consultant, and senior lending officer with community, regional and national banks.