Cloud-based cores – essentially, core banking technology that’s run on servers at several data centers – are seen as a more flexible solution to the demands of integrating fintech products with a bank’s other processes.

As the banking landscape changes, some banks and credit unions have responded by making a big move: leaving behind their legacy technology systems in favor of cloud-based core platforms.

And they are doing so with companies that might be less familiar than some of the longstanding providers of core banking technology, as they search for the ability to have an open banking infrastructure that will allow them to “plug and play” different technology solutions.

“We’re constantly evaluating ways to make our customers’ experience more innovative and simpler,” said Aleda De Maria, executive vice president of consumer banking and operations at Holyoke-based PeoplesBank, which is converting to a cloud-based core technology platform. “As we continue to grow and more customers rely on us for a premier banking experience, we recognized that we needed a partner that allowed us to be agile in all of our strategic directions and strategic initiatives.”

Cloud Enables Faster Innovation

Instead of using legacy back-end systems, cloud-based core platforms connect to data centers – sometimes a network of centers – for daily processing and updates. These cloud-based platforms come with a framework known as open banking or open application programming interfaces (APIs), providing a means for computers or software applications to connect with one another.

Having a cloud-based core removes limitations tied to hardware and other systems, said Milind Pathak, senior director of product management at technology company Finastra.

Finastra offers a cloud-based core called Fusion Phoenix, with clients ranging in assets from $75 million to about $20 billion. By opening up its platform, Finastra lets other technology providers integrate their products into the core system, Pathak said, giving banks and credit unions opportunities to offer different products to their customers – and launch them quickly.

While Finastra does offer its own solutions for financial institutions, including a mortgage platform, Pathak said no one technology provider can provide all the products needed to meet customer expectations.

“Clients will be able to innovate faster,” Pathak said. “They don’t have to rely on a company like Finastra for every single solution.”

While Finastra hosts its own data center for some clients, the company has adopted the Microsoft Azure cloud platform, moving about 80 institutions – most of Fusion Phoenix’s clients – out of the data center over to that platform.

“We can’t compete with Microsoft when it comes to their investment in security, their investment in bringing artificial intelligence and machine learning on cloud platforms,” Pathak said. “Rather than running it in our own data center, we decided, ‘Why not go partner with Microsoft.’”

Pathak said Finastra is already experiencing cost benefits from moving to Microsoft Azure, benefits that the company plans to share going forward in contract renewals and when signing on new clients.

New Core Opens Doors

Littleton-based Workers Credit Union recently decided to convert to Fusion Phoenix, a move Chief Banking Officer Peter Rice said would support the credit union’s plans for future growth.

Rice said financial institutions are good at offering products but often struggle with using technology to deliver on a mission-driven purpose. The credit union’s front-line employees in recent years have all become certified as financial wellness coaches, Rice said, and the credit union needs the technology to help scale this service niche.

“So much in our game has become plug-and-play – the ability to unplug and plug in solutions as our members evolve – and we’re seeing that pace change very quickly now,” Rice said. “Because Finastra is open and cloud-based, it has an unparalleled advantage for us in partnering with others to not just deliver on what members need now, but to contemplate and act on what members are going to need three and five years from now.”

Workers Credit Union spent 18 months on its decision to go with a cloud-based core. Everyone who works at the credit union was involved in choosing the new core – from frontline tellers to the finance department – and Rice said the staff all recognized the advantages of going with Finastra.

Having a cloud-based core will also reduce operational costs and help the credit union have more efficiency in back-office processes and increase its ability to scale, something Finastra’s Pathak said other cloud clients have enjoyed.

Workers expects to finish the conversion in July and has brought on extra resources, including project managers, to help with the project. While core conversions are hard work, Rice said, the staff is excited about the new core and dedicated to getting the process done.

Before committing to a cloud-based core, the credit union spent a significant amount of time understanding security, Rice said. He added that while financial services has lagged in adopting the cloud, other industries have operated in that environment for a long time, proving that the technology is reliable.

Seen as Tool for Growth

PeoplesBank recently decided to convert to Nymbus’ cloud-based core for its API-first approach, De Maria said, giving the bank the versatility to partner with technology companies on solutions that benefit customers.

“We’ll be able to plug and play whatever solution we feel would be valuable to the bank and to our customers very easily,” De Maria said.

The bank already had a relationship with Nymbus, which provides the core platform for Zynlo, PeoplesBank’s nationwide digital bank. De Maria said she and her colleagues were impressed with what it had seen Nymbus’ platform do.

Both customers and PeoplesBank staff will benefit from the conversion, De Maria said. Customers will have a better overall experience with more intuitive steps and fewer clicks, she said, and back-office employees will have simpler processes as well.

Diane McLaughlin

The bank spent 18 months evaluating options for converting its core, including conversations about operational risks associated with moving to the cloud. She noted that the bank would also face risks by staying with a legacy core system that could not support its plans for growth.

Having the Nymbus platform will give PeoplesBank the ability long-term to stay nimble with its product offerings in a highly competitive industry, De Maria said.

The bank plans to focus on communicating with customers during the process – in ways that will stand out – to help them understand what is happening and mitigate any uncertainty about the impact on customers. The bank also plans to provide training for staff.

De Maria said staff members at the bank understand the challenges associated with a conversion and the importance of the choice to go with a new core.

“We’re choosing to undertake this ahead of any of our peer banks,” De Maria said. “It just shows how critical and crucial we feel this core conversion is to our overall future growth.”

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by Diane McLaughlin time to read: 4 min