The AltFi view on cloud-native banking: From buzzword to business case

Weekly Leading Article

For years cloud-native core banking has been the buzzword of many a tech conference.

The promise that incumbent banks and financial institutions would soon be forced to overhaul their creaking legacy infrastructure, shutting down a tangled mess of on-prem and hosted servers.

Finally, they would join the rest of the consumer internet and embrace distributed infrastructure, all running on AWS or Azure.

Now, at long last, the promise is actually turning into reality.

Last week JP Morgan revealed its entire US network of Chase retail banks would be moving onto a cloud-native core banking platform created by Thought Machine.

Meanwhile, 10x Banking Technologies in June raised $187m from backers (and customers), including Nationwide and Westpac, and Mambu cliched a €110m round in January.

And a long list of other cloud banking providers from nCino to Yobota and Modularbank are all enjoying various success stories.

But why now? 

In truth, a collection of factors have built up over decades, putting banks under now enormous pressure to adapt.

Covid is obviously the latest factor, super-charging demand for digital banking services and more agile banks that embrace the newest technology.

It’s joined by a new generation of CEOs in the last few years at several major UK banks, all keen to demonstrate change while not repeating past mistakes.

Then there’s the sustained low-interest-rate environment banks have operated in since 2008, pushing down interest income on lending for far longer than anyone could have anticipated. This created challenging cost-income ratios, which were further highlighted by the arrival of neobanks offering current accounts while operating them at far lower costs.

Finally, there’s the aforementioned creaking legacy infrastructure, combined with a new industry understanding that banks aren’t technology companies, and maintaining a fortress-style mentality to controlling their entire tech stack isn’t really what bankers should be spending their time on.

These factors, and others, are combining to create a wave of real interest and real investment in cloud banking. And not a minute too soon.

The AltFi Leader is a new weekly view for 2021 from our editorial team. We’d love to hear your ideas, thoughts, feedback and constructive criticism: editorial@altfi.com