After years of lagging behind other industries, cloud computing projects are now becoming commonplace in the finance sector. But while such initiatives have generally centred around non-critical systems such as email and customer relationship management (CRM), banks are set to start entrusting core systems to public cloud providers too.
According to John Schlesinger, chief architect at Temenos - which sells banking software to some of the world's largest lenders - the majority of new core banking projects launched by the end of this decade will be in the cloud.
"We think that by 2020 most core banking initiatives will be in the cloud," Schlesinger told Computerworld UK at the Temenos Community Forum in Lisbon this week. He claims it is a case of 'when' and not 'if' banks adopt the technology at the heart of their business. Temenos itself has already made headway with a small number of regulated and lightly-regulated micro-finance banks that are currently using its software as a service platform.
At this stage the number of banks running core banking in the cloud is small. But while adoption is currently low, it is an increase from just one percent the previous year, and Schlesinger expects that this will grow quickly.
"We believe that by 2020, which will be after PSD2 and after Instant SEPA, that the trickle will become a tsunami," he said.
The first steps are already being made in the UK. Newly launched OakNorth was one to be the first UK bank to run its Mambu core banking systems in the cloud last year, migrating the platform to Amazon Web Services. Digital retail challenger bank Monzo, which built its core systems from the ground up using modern infrastructure software tools such as containers, also moved its core systems. Meanwhile, Metro Bank recently migrated its core infrastructure into a private cloud managed by Rackspace.
The approach makes sense for smaller challenger banks, lowering infrastructure costs and helping removing one of the barriers to entry in the market. "What cloud does is make everything cheaper. The on-premise story dramatically would lose out to the cloud story, given the economics of manufacturing of machines."
"A new initiative today like Atom Bank or Starling Bank may not be in the cloud, but by 2020 it would be," he added.
For the UK, regulation is no longer a barrier that prevents data from being held in the data centres of AWS, Azure and others, with the UK's Financial Conduct Authority publishing guidance for lenders last year. "We don't think in the UK there is a regulatory problem, the problem is we are a very consolidated banking market, and for a bank to be in the cloud it would have to be a new initiative."
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