Running an entire bank in the cloud was revolutionary when Judo Bank launched less than four years ago, but the upstart neobank’s decision has proven prescient after it successfully integrated a major new customer relationship management (CRM) platform in a matter of months – and ran the project entirely remotely due to COVID-19 lockdowns.

The decision to implement the new nCino Bank Operating System (BOS) – which manages client relationships with workflows that automate the complex lending process – came as the SME-focused Judo worked to better manage relationships with customers that were no longer available for site visits.

“Judo Bank’s relationship-based model of getting to know our customers, understand their business and build trust with them, regardless of their location, has been particularly critical during the pandemic,” said chief operating officer Lisa Frazier in announcing the new project’s completion.

Relationship bankers’ “time is finite,” Frazier added, “therefore the systems that support them need to take administration off their plate, support communications and generate fast decisions for customers.”

Such goals might be unremarkable in other digitally-transforming industries, but banks have never been known for their agility.

Risk-averse institutions have generally built up a morass of legacy systems, running them within in-house data centres to ensure security, predictability, and control.

Yet that legacy technology is getting increasingly difficult to modernise and can’t match the flexibility of cloud-based systems – driving many banks to accept that it’s finally time to modernise.

Bendigo and Adelaide Bank, for one, is undertaking a four-year project to combine eight different core banking systems – a legacy of its many previous acquisitions – into just one system, and expects to have moved half of its key applications to the cloud by 2024.

Judo Bank avoided having to make that decision by initially building its core banking system on the Microsoft Azure-based Temenos Infinity platform and working with Temenos to secure a full APRA banking license that validated the cloud-based strategy.

Rather than requiring banks’ development teams to rewrite complex in-house applications whenever new functionality is added, cloud platforms can be extended using standardised APIs – which is how Judo and primary contractor Accenture efficiently combined Temenos with nCino, which is built on top of the Salesforce cloud, in just nine months.

“We often refer to legacy technology, but there are legacy process and legacy culture and legacy operating models that will go with it,” nCino managing director Mark Bernhardi told Information Age.

“It’s all a web and supporting each other – and in the larger institutions, that network is a lot more complex and more deeply entrenched. As we come in with a more outcome-focused solution, you’ve got to navigate yourself through all those aspects – and it’s much more challenging as you get bigger.”

Modern applications had led customers and bankers to expect “seamless experiences”, Accenture financial services managing director Laura Valmorbida added, adding that “banks have traditionally tried to segment the processes into different systems –but they don’t really think about the end-to-end experience in terms of what the banker is actually trying to achieve, in terms of serving that customer at that point in time.”

Banks hitting the legacy wall

The increasingly apparent limitations of banks’ core banking systems has driven many to suggest that banks have run out of excuses.

“Legacy core banking systems have traditionally succeeded in terms of reliability,” one McKinsey & Co analysis noted. “However, with the advent of digital banking, cloud, and APIs, banks have seen a significant shift in the way banking products and partnerships are constructed.”

“Banks are now expected to process transactions in real time, be able to stitch together partnerships with fintech companies in a matter of weeks, release new features frequently, be able to scale their infrastructure needs at will, and execute on mergers and acquisitions quickly.”

Despite these pressures, existing core banking systems “are anything but an enabler of innovation, short time-to-market, and efficient compliance with regulation that they should be,” notes Forrester Research vice president and principal analyst Jost Hoppermann, arguing that the question of whether core banking replacements are needed was long ago settled.

“Banks without a modern application landscape will find it hard to remain competitive,” he notes, and “if a bank hasn’t yet completed or at least started on this journey, it’s already behind.”

Despite this, just 15 per cent of bank CIOs in a recent Gartner survey said that their enterprise business model had radically changed from before the COVID-19 pandemic.

By avoiding the weight of costly legacy infrastructure, Judo has differentiated itself from conservative banks of which just 27 per cent, Gartner has noted, consider themselves risk-seeking.

“Radical change is what is going to be needed to keep up with all of the macro changes happening around us in the world,” Gartner VP analyst Nicole Sturgill noted during the recent Gartner IT Symposium.

“Your competitors will be unknown and unseen,” she said, “and they could be anyone, anywhere in the world. They could be digital giants, or apps that are in a completely different part of the world but provide a service that your customers need. The world is more like a video game.”