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Banking on the cloud for a wealth of benefits

For many institutions, migrating away from in-house core systems is more of a business transformation than it is a technology project.

Aug 24, 2023 / Technology

A veteran transformation strategist who turned her sights to banking, Laura Merling is learning valuable lessons about migrating an organization’s core systems to the cloud. 

Lesson number one, according to Merling, Arvest Bank’s chief transformation and operations officer: 

“Create your migration plan but know you will recreate it at least two more times. Your first migration plan will not be your final migration plan because you are going to learn a lot along the way.” 

Lesson number two: Bring employees along. Thoroughly train them and let them immediately apply their new knowledge; otherwise, it evaporates. Build enthusiasm for what some employees regard as intimidating by providing team-based cash incentives for meeting goals. 

Lesson number three: “Just moving things over to the cloud just to move doesn’t add any value,” Merling says. “You need a business strategy. Determine the problem you’re trying to solve before moving solutions to the cloud, business case by business case.” 

Arvest, a $26-billion-asset bank based in Bentonville, Arkansas, majority-owned by the Walton family of Walmart fame, is on its third, and Merling hopes its final iteration of the migration of the first of two large data centers. It is being done in partnership with Google Cloud Platform (GPC). 

Merling is intimately familiar with GPC. Prior to joining Arvest in early 2022, she was GPC’s chief transformation officer. Merling has also led transformation initiatives for Ford Motor and AT&T. 

Like many banks, Arvest is migrating core systems from on-premise environments to better harness big data to meet customer personalization demand and to seamlessly connect customer-facing solutions with their middle- and back-office support functions. Other benefits include reducing sophisticated fraud threats and shrinking carbon footprints. 

In a presentation to Arvest’s board, Merling highlighted the migration’s anticipated benefits: enhanced operational efficiency, additional digital channels, growth through third-party partnerships to enable a modern core banking technology stack, faster revenue growth, and more rapid product and service development. The cloud migration of the first data center began in April 2022, not long after Merling’s arrival, and is scheduled for completion in November. 

The biggest benefit, Merling says, “is having the single view of the customer with all the data in one place. Both the customer and the associate have real-time access to and views of the data. The cloud infrastructure lets us do that. We could never create that in an on-premise environment without buying a ton of hardware and software.” 

John Kain, head of worldwide financial services market development at Amazon Web Services says, “For many banks, cloud migration is not just a technology project but more a business transformation.” 

Kain, a former executive director at JPMorgan Chase, says organizations that have been most successful at cloud migrations have “a clear sense of what they are trying to drive from a business perspective, such as using data and analytics to gain more customer insights. Or it may be an efficiency move by migrating from their legacy data centers to the cloud to pick up flexibility from a technology perspective.” 

Lower operational costs and improved security are two other leading benefits of migration, Kain says. He points to a migration led by AWS for student lender Sallie Mae that reduced time and maintenance by 25% through automating software patching. According to Kain, the student loan provider decreased overall costs by 30% and met its savings objectives in the first year, according to Kain. 

“In a lot of ways, financial institutions aren’t any different from large enterprises,” Kain says. “But what’s unique is that banks must have evidence and the ability to audit all those controls and governance that go into having a well-managed environment.” 

But are the benefits of banking’s cloud migrations living up to the advertised benefits? “I’ll be the contrarian on this,” says Robin Smith, vice president-North America for Mambu, an Amsterdam-based, API-enabled cloud banking platform. “The benefits live up to expectations, but not to the level that people claim. Here’s an imperfect analogy: Years ago, people were outsourcing technology work to developing nations where they could arbitrage labor costs. 

“But you often heard that the quality of the work was not what it should be,” says Smith. “You get some of the same thing in the cloud world.” The challenge for banks is moving to the cloud from “a legacy environment that has so many tentacles: there are integrations to other solutions, integrations inside the institution and integrations outside the institution.” 

In the meantime, Smith says financial services organizations must maintain legacy, on-premise banking systems. “You have dual costs: infrastructure costs and people costs to maintain the legacy systems while you implement a cloud-based solution.” 

According to Smith, “the cloud environment, in many cases, is more secure than their legacy environment. But you must navigate that integration of the legacy systems with the cloud, and that is where the vulnerability is.” 

“The cloud vendor can be rock solid and hardened from a security standpoint with their cloud, and the bank can be rock solid and secure with its on-premise infrastructure. But it’s when you interconnect the two that you open some vulnerabilities.” 

Despite its risks and occasional overstated promises, “the cloud is the only solution because banks and credit unions have to get rid of their legacy infrastructure. It’s very expensive, it’s clunky and nobody knows what it does,” says Vlad Lounegov, founder and CEO of Mbanq, a San Francisco–based fintech providing digital core banking solutions. 

“There are so many systems to maintain, some built in the early 1990s that are not internet-ready,” Lounegov says. “They did not have the customer experience component built into them, and there was no perception of cybersecurity in those days because there essentially was no internet.” 

The only way forward, he says, is to shed the legacy systems. “Banks need something that is modern, scalable and in tune with other providers, starting with APIs that connect them with best-of-breed innovators. You have to forge partnerships with fintechs. To do it on your own is very difficult.” 

We offer actionable insights on other digital evolution topics that can benefit banking institutions in the BAI Executive Report, “Keeping up with banking’s digital evolution.” 

Edmund Lawler is a BAI contributing writer.