Entering the Cloud: How Financial Institutions Can Navigate the Digital Transformation

For consumers and companies alike, digital processes have shaken up traditional practices in nearly every industry – and financial services are no exception. As instant service and around-the-clock connectivity become the norm, consumers are demanding constant online access and service from their financial institution, no matter what device they are using. A desire to keep pace with changing customer expectations has forced financial service providers to adopt more modern technology and processes, leaving many struggling to balance the new system with the old.

Traditional financial organizations now find themselves competing in the FinTech sector, with companies built around secure cloud infrastructures that offer operational and user experience benefits. These “born-in-the-cloud” businesses aren’t just nibbling away at more established providers, they’re biting off large chunks and returning for more. Digitally native financial services companies are rewriting the operational model, leveraging the cloud’s agility and multi-channel reach without being stymied by legacy systems designed for days of limited consumer choice.

Caught Between Two Eras

Established financial institutions now face a two-pronged issue: Customers are demanding a functional, accessible, and secure core infrastructure, but don’t want systems designed for a multi-channel experience. These competing customer demands have prompted institutions to rethink their approach and radically re-engineer their infrastructure. Some have decided to create a separate digital organization as a complement to their traditional business, migrating customers to new services while differentiating functions from their typical operations. Companies that go this route can quickly trigger an identity crisis, while a customer exodus to the digital organization strikes a critical blow to the traditional business.

Some organizations take a more transformative approach, seeking to shift their core functionality to the cloud. These companies often aspire to become bona fide FinTech contenders and remove the legacy technology they believe is dragging them down. But replacing years of investment in core systems like mainframes is difficult, requiring significant investment and time before any results appear. In an environment where customers expect quick solutions, businesses should realize that the resulting time lag often escalates frustrations and costs them customers.

Crafting a Dual Approach

In the race to satisfy customers’ technology expectations, organizations seeing the greatest success are those that have fused the old and new. They’ve embraced the cloud to develop an enhanced user experience but connected it to the core systems of record that enable secure and reliable processing power.

With a combined strategy, financial service organizations are eliminating the time and effort wasted on trying to update systems of record. Now, they can create API frameworks that allow a seamless and secure connection between the cloud-enabled user experience and the core systems. This hybrid approach, employed by financial industry players like Gartner, helps institutions meet user demands, better engage and retain customers, and improve user experience. They are also able to modernize their core infrastructure without slowing down transformative efforts.

While a hybrid strategy appeases increasingly demanding customers, it also generates fresh challenges. Organizations must operate both a legacy and modern environment simultaneously, while also ensuring they are securely and seamlessly joined. Now institutions must implement a model that maintains the legacy environment while also driving change into the digital space. The cloud makes adopting an agile approach simple, but it becomes harder to integrate into the mainframe or other traditional environments. Within a legacy system, challenges arise when creating an action plan that enables continuous change. A DevOps solution may not be necessary, but the need to modernize institutions’ old systems is non-negotiable.

“Born-in-the-cloud” FinTech enterprises are pushing financial services toward digital solutions – but rushing to the cloud may do long-standing organizations more harm than good. A hybrid state where legacy infrastructure is retained as the primary systems of record, and the cloud is used to enhance the customer experience, appears to be the reality for the medium-term future. Implementing this ‘best of both worlds’ approach allows organizations to develop a more agile infrastructure, helping them adapt to the next generation of cloud solutions and better serve a demanding customer base.