Carried forward on a wave of digital transformation and competition, banks have increasingly leveraged cloud technology to deliver the speed and efficiency their customers demand, cut costs, and unlock newfound abilities to adapt, innovate and launch new products fit for a fast-changing market.
But the cloud is steadily becoming the norm and the decision to migrate data and applications will not deliver the competitive advantage banks seek unless part of a wider strategic vision, with those leading the journey having a clear roadmap of exactly where they are trying to get to.
“Traditional banking has to be completely reimagined,” says Ravishankar Subramanian, senior vice president and head of the newly established banking practice at Hexaware. “Digital is nothing special. It is the past in the industry. What is different now is identifying where it can best help transform your business.”
Banks are being driven towards the cloud by the lack of flexibility in their legacy systems. Many core banking systems have been running for 30 years or more but still handle an estimated £2 trillion in transactions every day. Nearly 50% of banks do not upgrade old IT systems as soon as they should, according to a report by the UK’s Financial Conduct Authority, and around 43% of US banks still use COBOL, a programming language dating from the 1950s.
The need for guidance
An Accenture survey found that more than 90% of banks have addressed this challenge by migrating at least a moderate amount of their workload into the public, private or hybrid cloud. The proportion of banks reporting a high share of their workload in the cloud increased from 33% in 2018 to 47% in 2020. That figure will be significantly higher still today.
But levels of satisfaction with the shift to cloud vary. According to Accenture’s findings, only 35% of banking leaders captured the full value they expected from moving workloads to the cloud. Only 29% said they fully achieved their expected outcomes related to speed and enablement, and just 32% were completely confident that their organisation would deliver the expected value at the expected time. It seems the technology is there, but the information and guidance to best exploit it remains lacking.
Traditional banking has to be completely reimagined. Digital is nothing special. It is the past in the industry. What is different now is identifying where it can best help transform your business.
And failure to do so, says Subramanian, is not an option. Those looking to simply stick with the status quo will soon be overtaken by more flexible competitors and risk going out of business. At the same time, pursuing change for change’s sake, without fully assessing priorities and pain points, is no solution at all. Banks are complex organisations, pursuing an array of functions, from deposits to loans, and credit cards to payments; what works for one department might not be the answer for another.
“It’s raining cloud everywhere, and it will rain cloud for another three-to-five years, so we need to make it a perennial feature in everybody’s plans,” he adds. “Cloud will be a very important player for the next few years but, after that, it will become just another technology. So, we need to make the concept right and slice it into the right shape to fit a bank’s specific requirements.”
Time is money
Therein lies the challenge. Charting a course towards an effective and bespoke cloud strategy must be done carefully, but also at speed. The mess of legacy systems that hold valuable data presents a major technical challenge for a number of legacy institutions. The emergence of new, digital-first challengers in the financial services space – as well as the greater agility of existing smaller banks – creates a pressing need for big banks to act quickly to stay ahead of the competition.
“Banks are on board with the move to the cloud, but for large Tier 1 banks, which are monolithic in their structure, the pace of change is slow,” says Subramanian. “Change will be led by Tier 3 and Tier 4 banks, which are more agile, but still have the critical mass.”
“Those smaller banks will make the first difference,” he adds. “Then there are the new banks which can cause major disruption with very little investment. Big banks have applied plaster after plaster, but longer-term strategy is required. It comes down to defining appropriate areas of investment.”
In the financial services sector, some concerns remain around security, as banks are custodians of sensitive data, and there is some hesitancy around business continuity and the process of digital transformation, so banks really need a partner who can understand this journey, address the unique requirements of banking customers, and help banks move towards a long-term vision for futureproofing their business in a rapidly changing environment.
“We are wanting to partner with leaders of banks to decide the right path for them, and to help them think beyond technology and look at how a domain-centric view or business-centric view will take rather than just look at it from a technology centre.”
Walking the tightrope
Having seen the world in general – and the banking industry specifically – undergo dramatic change during the Covid-19 pandemic, legacy banks have been reviewing their incremental approach to digital transformation and cloud migration. The pandemic has heightened their sense of urgency.
“The pandemic has unsettled operations and people are beginning to realise the sooner I adopt the digital transformation, the better it is,” Subramanian observes. “Very few, however, have been able to take that bold step of thinking longer-term; they’ve been in a state of shock, trying to stabilise.”
Hexaware’s head of banking believes there has been a mindset shift in the last three months as the world re-emerges into some form of new normal. Between them, Subramanian and his tight-knit leadership team have more than 100 years of experience working with the banking sector across multiple geographies. They have engaged in lengthy conversations with their network of banking contacts over recent months, discussing pain points and priorities for the sector. It has emerged that is that, while financial institutions have the capital and the will to pursue smarter cloud strategies, they are overwhelmed by the number of options available.
“The vast majority understand the need for change,” Subramanian acknowledges. “But far fewer have a clear idea of how best to deliver it. They need what is possible to be assessed and visualised.”
Nearly 50% of banks do not upgrade old IT systems as soon as they should, and around 43% of US banks still use COBOL, a programming language dating from the 1950s.
These conversations and learnings have all fed into the launch of Amaze for Banking, an industry-specific cloud migration platform which works with banking partners to address the unique challenges and complexities this sector faces. The solution is based on Hexaware’s “R-Lane Framework”, which breaks down cloud migration into a series of nine key steps to bring a bank’s data infrastructure and applications into the cloud in a fast, cost-predictable, secure and co-engineered manner, harnessing the power of extreme automation. Looking at the unique requirements of different departments such as corporate banking, credit card services, payments and cash management, it helps banking leaders prioritise and plot their migration roadmap.
“In deposits, for example, downtime criticality is very high,” says Subramanian. “The same is true for credit card services and payments. So, you need to slice up everything by business need within the bank. Just because you have a hammer, not everything necessarily becomes a nail. Banks need to think about where the value for money is.”
“The model enables banks to see where the maximum value for money lies over a period of not just one or two years, but over the period of next three-to-five years minimum,” he adds. “We can lay out nine options [rewire, rehost, replatform, rearchitect, refactor, reengineer, redesign, refix’ or reset] and tell you why one is better than two or four is better than six, and what is easier, what is difficult in the context of your department, your bank and your industry.”
In Subramanian’s experience, very few banks have thus far found the optimal approach to getting value for money from their cloud migration strategies, consumed as they are by either the need to move at speed or by the complexity of their legacy infrastructure. With Amaze for Banking, however, he hopes Hexaware has created the right platform for offering financial institutions a clear pathway to genuine, sustainable, and long-term business transformation.