Our third core belief in digital banking centres around the key features of modern architecture, the cloud, and an API-ready environment that promotes open banking.
Banks that have successfully undergone digital transformation have reaped the rewards of enhanced customer experience and efficient operations. Looking into it, a typical digital banking experience has key features, including 24/7 real-time and on-demand customer service.1 However, the question remains: How did digital banks manage to achieve this transformation? The secret lies within their architectural framework.
To fully leverage the benefits of digital banking, many banks have adopted a hybrid cloud strategy. This approach allows banks to capitalise on the advantages of the public cloud, enjoying cost savings, scalability, and efficiency, all while still adhering to strict regulations and ensuring a high level of security via their private cloud infrastructure. The cloud grants banks the ability to access computing services instantly through the internet, eliminating the need to host these services in on-premises data centres.
The primary advantage of cloud-native systems is their agility. This helps reduce delivery times for digital programmes or new products introduced in response to changing market conditions, emerging revenue opportunities, and evolving customer needs.
Moreover, as legacy system updates often entail layered scripting, the cloud core banking systems foster agile, resilient product development, testing, and launch, enabled by microservices. Development teams break down the work into smaller components, working on different modules simultaneously without the risk of overlaps. This speeds up product releases, software updates, and monthly launches for banks.
Investing in modern cloud architecture also reshapes the cost curve for substantial longer-term savings. Legacy on-premises data systems become increasingly expensive to maintain over time due to upgrades, raising fixed expenses. Embracing cloud solutions shifts technology costs to variable, allowing banks to redirect their resources efforts and reinvest the cost savings into growth initiatives.
Open banking2 heavily relies on cloud-native banking systems, which serve as the cornerstone for processing large volumes of data in real time. Additionally, the significance of API connectivity cannot be overstated.
The problem with legacy stacks is they either have bespoke point-to-point integrations or are incompatible with new vendors or systems. Both factors make integration with new systems and vendors difficult, resulting in longer integrations. With API connectivity in the cloud, there is greater flexibility for new system integrations, allowing banks to quickly absorb and process immense volumes of data from a myriad of different sources, facilitating real-time processing.
In this age, where customers increasingly demand for a more personalised customer experience, real-time services catered to customers is key for banks to retain a competitive advantage in the market. That said, open banking APIs are not without security risks. Common concerns are data breaches due to poor security, hacking, or insider threats. As more firms adopt cloud solutions, we see an increase in attacks on cloud-based networks. To mitigate these risks, open banking regulations are in place to ensure that firms have a robust security system before coming on board the network.
Internally, firms should ensure that all API security measures, including authentication, authorisation, and encryption, are in place. Firms should train and educate their staff on basic cybersecurity knowledge to prevent hackers from gaining access to their credentials on cloud computing tools. AI has been frequently adopted as a tool to enhance cloud security, identifying threats and providing insights by detecting anomalous patterns and vulnerabilities within mass networks.
The adoption of modern architecture and cloud technology has become increasingly vital for banks to thrive and maintain relevance in the face of growing competition, including from non-bank players. One of the notable outcome of this shift is the rise of Banking-as-a-Service (BaaS), facilitated by APIs, enabling businesses without core banking infrastructure to offer a range of banking offerings to their customers. This development has proven to be a game changer, allowing non-FIs to snag a piece of the market share.3
By embracing modern architecture and harnessing the power of the cloud, banks can unlock critical sources of value that drive growth. In today’s landscape, where banks face mounting competition from non-bank players, it is imperative for banks to go digital and leverage modern strategies and architecture to stay relevant and competitive.
At Synpulse, we enable scalable digital transformations. We assist financial institutions, particularly private banks, in reshaping their systems, services, and architecture, leading to long-term lower fixed costs, greater flexibility for modern integrations, and a shift towards revenue-generating activities.
With support from our sister brand Synpulse8 and more than 100 ecosystem partners, we engage in services that aim to deliver a customer-centric experience to our clients. This includes the development of our proprietary PULSE8 API architecture, core banking transformations from on-premises to the cloud, and establishment of digital cloud-native banks.
Reach out to us to take the next step in your digital journey!
1 Firas Ghunaim, How To Design The IT Architecture of a Digital Bank (Sitech, April 2022).
2 Open Banking - A Primer (M2P Fintech, July 2021).
3 Banking as a Service (BaaS): the Platform Approach to Banking (International Banker, 10 September 2020).
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