When the results from a new Celent and Mambu report revealed that by running a cloud-native core for five years banks may save $246.1 billion, a 76% reduction in core spend and 15% savings in total IT costs over the same period, analysts weren’t surprised.
Yet many institutions today are struggling to find a competitive advantage and are mired in legacy back-office platforms, which can hinder performance, reduce agility, consume a disproportionate amount of resources, and contribute to the perceived risk of trying something new.
And while tentatively exploring the benefits of cloud-native banking platforms, the cost of running a legacy core platform and potential impact to the business is only getting greater with time. So what’s the tipping point for core migration for financial institutions?
According to Celent, banks need to rethink the calculus around core migrations as the need to modernise becomes more pressing. Central to a bank’s tech operating model, core platforms are a major source of organisational spend. Challengers have focused on next-generation cloud-native core platforms, which in the case of banks like OakNorth have reduced the cost base by close to 75% compared to traditional incumbents.
The risks of large-scale transformation projects, cost of transformation, and organisational inertia are barriers to core migration. However, as negative consequences of legacy technology become more pronounced, the costs of doing nothing will overshadow the risks of migration.
Large-scale five-year transformations will still be difficult to justify but, in Celent’s view, will begin to be replaced by more modern, cloud-native methods for progressive renovation. Running in the cloud, institutions are moving away from large transformation initiatives that come with significant cost, risk, and timelines for ROI. As the business case becomes easier to make, more financial institutions will realise the risk is worth the reward.
Take a look at the full ‘The tipping point for core migration’ report and find out what Celent further identifies as the advantages of cloud-native cores in reducing the total cost of ownership, and learn about the implications of running a legacy core for your business.