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CORE BANKING – SAAS Moving to the next level
The banking sector has finally moved beyond the discussion stage to actively look at which of its core systems can move to cloud platforms. Kate O’Flaherty reports
cloud were almost unheard of. While the financial sector is no stranger to public cloud – which it has long-used for support functions such as procurement and HR – core systems were omitted due to security fears and regulatory issues.
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But this is starting to change, in part fuelled by new guidance announced by the Financial Conduct Authority (FCA). This encourages the use of Software as a Service (SaaS) for core banking to remove the barriers of entry for challenger firms in the market. Among its benefits, it allows new entrants to build and scale their offerings rapidly. For minimal capital expenditure, cloud allows challenger banks to compete with bigger rivals – without being held back by clunky legacy infrastructure.
With this in mind, larger financial organisations are realising that it could be the answer to boosting ongoing digital transformation efforts. This is seeing them start to actively look at which of their core systems could benefit from cloud platforms. SaaS’ advantages include lower total cost of ownership, automatic and more frequent upgrades managed by the primary service provider, and open API standards to plug in ancillary systems with lower integration costs.
These benefits enable speed to market and flexibility, claims Eugene Danilkis, Co-Founder and CEO of Mambu. He explains: “It’s not about SaaS itself, but the application. A characteristic of SaaS is, it’s highly configurable, so applications are very flexible. This allows banks to go live in the space of a few weeks or months.”
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ive years ago, core banking systems in the
Therefore, cloud is ideal for accelerating the launch of a new business, says Bruce Jennings, strategic development director at FIS Global. It is especially popular in areas where regulators are granting more licences, including the UK.
Another driver of SaaS is the disposal and splitting up of banks, such as Lloyds TSB, says Jennings. In addition, cloud is an attractive prospect for organisations entering new markets that are wishing to try a fresh approach rather than relying on existing legacy technology.
Overall, SaaS offers the most advantages for banks starting from scratch, observes Simon Barrows, Director at Archioptiryx. “If you are starting today, with no customers, cloud offers speed, low cost and flexibility.”
Challenger banks
Cloud’s flexibility also allows firms to evolve over time. Even some challenger banks have adjusted their approach to cloud as they grow, to become more personalised. Barrows cites the example of Metro Bank, set up in 2010 outsourcing its entire IT operations and using an external core banking platform. However, Barrows says: “They have moved away from that now, bringing control of the platform in house.”
One of Jennings’ customers is digital only venture, Atom Bank, which offers an app supported by FIS’ core systems. The bank wanted an engine that sits in the background on a robust and functionally rich platform,
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