Cloud computing refers to the on-demand availability of computer system resources, especially data storage and computing power. In banking, the cloud theme plays a critical role in core modernisation, which includes various efforts to improve the performance of legacy systems and applications through replatforming, revitalising, replacing, remediating, retrenching, or some combination of these.

Listed below are the top cloud predictions, as identified by GlobalData.

For years, core system replacement has been the revolution that never was. A handful of Australian banks embarked on it, and all came in late and over budget. Nordea is still in the midst of that transformation, a task akin to changing the engines of a Boeing 747 mid-flight. Even if it were technically possible to reduce risk and time-to-value with progressive renovation, it’s still a long-term strategic investment that’s difficult to deliver. But 2020 will see renewed focus on highly pragmatic efforts to contain, bypass, and decommission legacy.

Part of this will be driven by the fear of a ‘TSB moment’ (in April 2018, a shift to a new IT platform by TSB caused a serious collapse of its IT system, leaving 1.9 million customers unable to access their accounts.).

But this will also be driven by the threat of regulation. In the Financial Services Sector report, published in October 2019, the House of Commons Treasury Committee deemed the UK’s financial services sector to be responsible for unacceptable levels of IT failures, adding: “The current level and frequency of disruption and consumer harm is unacceptable.”

Suggested solutions range from linking senior pay to operational resilience levels, to issuing best practice guidance and fostering better industry-wide collaboration, to helping firms avoid making the same change management or technology procurement mistakes as one another. Specifically, the report said: “The regulatory mechanisms to ensure accountability for failures must have teeth, and equally as importantly, be seen to have teeth.”

As banks continue to focus on modernising their services, we will see a dramatic rise in outsourcing when it comes to the management of legacy systems. Rather than focusing resources on managing their IT stack, banks will hand off responsibility to third parties to find new routes to market that will grow their consumer base.

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By GlobalData

In choosing partners, smaller core banking vendors will get more of a look in. While they represent a less proven solution to big banks and are typically less able to support incumbents across all products in all geographies, they are built on cutting-edge tech that is not available through incumbent vendors. Most big banks will ‘try out’ new players on new build banks (such as RBS with Mambu through Bo and ABN AMRO through New10), but the Lloyds approach, in which the bank obtained regulatory approval to migrate 500,000 legacy motor finance accounts to Thought Machine’s cloud-native core system, will gain traction.

It will be interesting to see how new cloud ‘core’ players, like 11:FS (with 11:FS Foundry), fare with big banks. 11:FS built the platform, which came out of work it did with Mettle, and now it is turning it into a product. It is working with DNB of Norway and has funding. As a project, 11:FS is paid for its time. As a product, it’s more about the code and all the training and documentation that takes years to build before systems integrators can pick it up and deploy it. If the first few bank clients have to keep going back to the vendor for one-off support when implementing, it will create a real scaling issue.

This is an edited extract from the Banking & Payments Predictions 2020 – Thematic Research report produced by GlobalData Thematic Research.