77% of UK bank innovation leaders say challenging the status quo can put careers at risk

Our new research shows legacy technology, outdated processes, and workplace culture are limiting the value of core banking transformations – with half of banks who’ve migrated to cloud failing to achieve their stated goals.

London, 18 June 2024 – NextGen data-driven core banking engine, SaaScada, today launched a new report – Core Banking Modernisation: The Pitfalls and The Promises – showing UK banks are failing to get the full value from their cloud-based core banking systems due to underestimating cultural challenges, poor planning, and cloud tech impostors.

The report analyses data from a survey of 150 heads of innovation at UK retail and business banks showing that while nearly all UK banks recognise the need to modernise on cloud, the road to modernisation is littered with potholes and broken promises – as almost two-thirds (63%) of respondents think most cloud-based core banking platforms are just the same legacy tech with a new lick of paint.

Key findings include:

• Resistance to change is holding banks back: 77% of respondents say banks need to modernise, but challenging the status quo often puts careers at risk, with 67% saying they are unable to throw out legacy tech because it was selected and implemented by decision makers still in the organisation. Furthermore, 80% say the board don’t want high-risk projects carried out on their watch.

• Cloud is the end goal, but it’s no easy feat and success rates vary: 94% of respondents have at least part of their core banking infrastructure hosted in the cloud or are in the process of migrating. Of the 73% of respondents that have migrated, or are in the process of migrating, at least part of their core banking infrastructure to the cloud:
  • 57% have suffered service outages and disruptions during the migration process.
  • 51% have accrued technical debt during migration, leaving a backlog of work to do in the future.
  • 54% have been unable to, or are struggling to, decommission their legacy technologies.

• Not all cloud banking is created equal: After adopting cloud-based core banking systems, many banks are underwhelmed by their capabilities. Of the 60% of respondents that have migrated core banking systems to the cloud:
  • 51% said they have not achieved their stated goals.
  • 57% still can’t implement changes or launch products at the speed they hoped for.
  • 41% still can’t access the data they need after cloud-based core banking implementations.

“To fully reap the rewards of cloud-native core banking, banks must transform their culture, choose the right technology from the outset, and put customer-focused objectives in place,” comments Nelson Wootton, Co-Founder and CEO at SaaScada. “Banks need to act now, as standing still is an existential threat– putting them at risk of losing out to competitors, shrinking their market share, and struggling to meet compliance demands.”

The report explores how successful migration starts at the planning and Request for Proposal (RFP) phase, but so do migration challenges and resistance to change. Of the respondents who have migrated, or are in the process of migrating, to the cloud:

• Two-thirds (65%) say organisational policies are preventing them from making full use of their core banking technology.
• 61% lack the skilled talent to implement the project.
• 58% have faced changes in scope during the project, leading to escalating timelines and costs.

Moreover, 77% of respondents think RFPs are too prescriptive and often focus on minute details, instead of the desired outcomes, while 67% think the RFP process is more often about risk-aversion and internal politics.

The report also highlighted the different approaches that banks are taking in terms of migration. Of the 73% of banks who have migrated, or are in the process of migrating:

• 41% have opted for a permanent concurrent approach, limiting the value of modern architecture and increasing costs.
• Nearly a third (29%) decided to carry out a straight switchover, risking outages and disruption.
• Only 30% of respondents opted for a co-existence model which offers a way for banks to modernise processes over time, while keeping systems running and avoiding the risk of a straight swap.

“It’s madness that nearly a third of banks opted for a straight switchover approach. It’s like carrying out a heart transplant with the patient walking about. Banks must select smaller but high-impact systems to migrate one at a time to reduce the risk of disruption while meeting customer needs,” adds Wootton. “Bitesize projects prove how banking transformation improves efficiency, increases speed to market, and unlocks new revenue streams while keeping costs low. This will help win over hearts and minds from the top down and ensure banks get the full value of cloud-native core banking.”

You can read the full report, “Core Banking Modernisation: The Pitfalls and The Promises”, here.

About the research

The data was gathered in April 2024 from 150 UK-based business heads/C-Suite staff at retail and business banks who are responsible for product innovation (e.g., Heads of Digital Transformation/CTOs/Chief Innovation Officers/Heads of Innovation/CEO). The banks were mid-sized, with a balance sheet of £0.5Bn – £4Bn.