Covid proved to be just what banks needed to begin moving off their mainframe systems (at last) and shift their core banking technology to the cloud, says a new report from Accenture.
“It was like a light switch turned on,” said Michael Abbott, who leads Accenture’s Banking industry practice globally. “Three years ago the interest level was nowhere near what it is now, maybe just one in 10 clients said they would look at cloud,” he said.
“While many banks have embraced cloud for customer-facing systems like mobile and online banking, and for employee tools like email and video conferencing, they still rely on older mainframe technology for their core business functions,” he added.
“As a result, most basic banking products like checking and savings accounts are powered by a spaghetti tangle of code written decades ago. Faced with rising interest rates, competition from fintechs and increased competition for deposits, banks are looking to the cloud to help them quickly drive core banking product innovation.”
Large banks typically have tens of millions of lines of code written in Cobol, he said.
“The assumption was you could only run Cobol on a mainframe, but that has been disproven. People have figured out how to take the core operating system and replicate it in X86 architecture and recompile the Cobol to run in the cloud,” he said.
“It has given new life to old code, and we see this happening around the world. Now banks are able to unlock their 30 years of investing in Cobol, run it in the cloud and start modernizing it in place with microservices and APIs, replacing it in pieces and moving to modern architecture. They can save 50% of the expense structure and run modern tools using Cobol.”
The survey found that 77% expect to recover their mainframe migration investment within 18 months. The legacy code base still serves the banks in a good way, he added, since deposit accounts haven’t changed that much in 10 years.
“The challenge is when you want to put feature functionality around the account. In the past that has been tangled. Now banks can keep the core accounting and pul the spaghetti code apart and bring new features through microservices and APIs, leaving the accounting in the core systems of record and launching product innovation through modern architecture that lets you scale quickly. As cores get hollowed out you have the ability to replace them. You can put in a new core in parallel and slowly retire the old core.”
He cited FIS with its cloud-based Modern Banking Platform as an example in the U.S.
The survey found that mainframes are a mixed of ages — 58% of those surveyed said their mainframes are 5 to 10 years old, 27% said 11-20 years old and 9% reported legacy equipment that was 21-30 years old.
Public cloud appears to have won over bankers, many of whom were skeptical about going to a public cloud even though it typically provides the most cost-effective approach. Of the survey respondents, 63% plan to move workloads to a public cloud, 31% are aiming for a hybrid cloud environment and just 6% planned on using a private cloud.
“Europe is leading the way and the U.S. is coming right behind it. Asia to some extent is leapfrogging in some technology because it is building more modern banks with fintechs. It varies around the world, depending on market dynamics and the age of the systems.”
The pandemic was a catalyst because banks had to virtualize operations like call centers, and that proved the power of the cloud.
“There was no way to build all that technology on-prem so it got built in the cloud. The cloud unleashed speed and agility, reduced the cost base and allowed banks to scale up and down at need. Now that front end effort is going into the back end of banks. Bankers are looking at their first rise in interest rates in decades and asking how am I going to move the pace of product innovation. The need for speed is feeding into the core; everyone is looking how to innovate in two weeks rather than nine months, and there is no way to do what without rethinking the core central architecture.”
Attracting and retaining skilled technologists remains a problem for banks, which are not generally regarded as exciting places to work, as evidenced by how long they have kept legacy mainframes running. Abbott said banks are better at recruiting young talent than keeping it.
“Successful banks are reshaping their cultures by creating roadmaps for the skills they need in the future and developing strategies for hiring from new talent pools and reskilling their workforce. Some are also dramatically increasing their use of external talent pools and embracing remote and hybrid workforces.”
It’s probably no surprise that cybersecurity skills were most in demand, with 47% of executives looking for those people. But a near match at 46% were specific cloud skills such as cloud-based virtual architecture, platforms and applications for speed and agility.