Legacy core banking systems are typically platforms that are decades old that banks and financial institutions use to support their back-end infrastructure for services such us setting up new accounts, processing deposits and transactions, and initializing loans. Legacy banking systems often lack the features of newer financial technology, such as the ability to interface with other systems, and can often hinder the ability of traditional banks to quickly deploy new products and services.
Newer banks, such as online and challenger banks, are often deployed on cloud-based platforms. This allows them to take full advantage of everything technology (and a cloud platform in particular) has to offer in order to optimize their core platforms and allow for new services and experiences in reaction to customer demands. Banks that utilize cloud platforms often have more access to what customers want, either through a strong social media presence or by analyzing customer data that has been collected through their services. However, incumbent banks to do not have to continue to rely on legacy systems while newer entrants to the banking industry flourish. Instead, incumbent banks can undergo a digital transformation and step into a new age of banking services.
A digital transformation allows banks and financial institutions to migrate from legacy core banking systems to cloud-based platforms. Cloud platforms have many benefits for these institutions, including:
- Reduced time to market: Cloud platforms are designed to be agile and easy to deploy. This means that there is a short turnaround time for moving to the cloud, as long as proper planning has been completed. Additionally, after completing a digital transformation, businesses can easily expand or deploy new products and services in response to customer expectations and feedback.
- Machine learning: Machine learning is a type of artificial intelligence (AI) that learns more about a subject as it ingests more data. Machine learning can be utilized in a variety of ways to improve banking systems, especially as data can be collected from nearly every component of a cloud platform. For example, users can be tracked in real time across services to see how they interact with the platform. This data can then be used to analyze what products may appeal to them, or where multiple users are experiencing issues that need to be addressed.
- Open banking: Open banking allows banks to share information around financial services with third-party apps that their customers have authorized. This allows banks access to new streams of revenue as more people connect their banking experiences. Open banking is required in many parts of the world and is likely to continue growing. As more customers understand the benefits, open banking will become more and more necessary as a banking service.
- Increased customer interactions: By allowing customers to access and engage with financial services from any internet-enabled device, financial institutions can improve customer satisfaction. Rather than having to go to a physical location during specififed hours, cloud platforms can allow bank customers to have access to all information and services 24 hours a day. Furthermore, by collecting evidence about how customers interact with banking systems, financial institutions can have clearer insights into what exactly customers want from their system.