I believe that investors seeking Software-as-a-Service (SaaS) solutions with steady income streams from subscription pricing are the driving force behind this.

I say "cloud is all the rage" "again" because, in the past thirty years, I have witnessed at least two earlier hype cycles centered around cloud computing. Still, at least the question of whether banking will migrate to the cloud is no longer being debated.

The cloud is nothing new, as we all know. It actually has a lengthy past. One may argue that the idea of selling computing power as a utility made possible by time-sharing mainframe computers originated in the 1960s. These mainframes' capacity for parallel processing and efficient resource sharing increased along with their processing power and storage capacity.

The ability to purchase mainframes and operate them in their own data centers was limited to the biggest banks; Barclays is credited with founding the first banking data center in the early 1960s. However, smaller banks, credit unions, and building societies were not left behind as independent "service bureaus" purchased mainframes to provide them access to a portion of their processing power. Banks were spared from building their own data centers when similar service bureaus later began to offer businesses the choice to purchase their own computers that were controlled externally by the bureaus. In a sense, they were the original cloud service providers.

In the dot-com era, banks could use the internet to connect their branches and head offices instead of relying on private telephone networks. Additionally, this made it easier for outside parties to grow their services and offer pooled computer resources.

If cloud computing is defined as computing services that are available via the internet, then this was probably the beginning of cloud computing. During this time, the early clouds were really used for internet services like online banking.

A significant limitation of this software development was that each application was usually a "monolith." Even if they weren't created in antiquated languages like Cobol, they were usually installed and made available as a single software package. Thus, although Java software was modular in nature, it was usually distributed as a single package.

In the 2010s, after another ten years, we had even faster CPUs, less expensive memory, and more storage. Additionally, software advancements like "micro-services" and "containers," which enabled cloud-native solutions, eased deployment.

Big Tech companies (like Google, AWS, Microsoft, and others) started growing the availability of cloud computing at the same time. The larger a company, the less expensive it is to provide cloud computing. In addition to the financial benefits of growth, Big Tech companies have developed software and hardware at a far faster rate than banks were able do with their data centers. Furthermore, when you are providing the service for numerous organizations, factors like resilience, security, and disaster recovery all demand a higher level of capacity.

You're probably aware of the stack—infrastructure, platform, and software as a service—because during this time, the cloud providers offered everything as a service.

Although cloud banking first faced regulatory obstacles, Big Tech and regulators eventually made cloud banking an attractive alternative. Now that we're here, you must be thinking that everything about clouds is simple. Surely banks can just purchase or develop software and let cloud providers handle the maintenance of their offerings?

Alright, no. First and foremost, banks are still accountable for making sure they are resilient against growing cyberattacks in accordance with laws like DORA (the Digital Operational Resilience Act). Banks also have the chance to convert their monolithic legacy systems to cloud-native ones. This is a minimum five-year investment for core banking—that is, if everything goes according to plan the first time! Still, there are a ton of benefits. A future article will cover this in more detail. Being genuinely cloud native can lead to far better scalability, faster development times, greater resilience, and significantly cheaper infrastructure and operating expenses. Which bank wouldn't want all those advantages in a perfect world?

This week, all I'm saying is that, even though banks have been moving toward the cloud for more than 50 years, they simply cannot afford to wait to start benefiting from it. Innovation is moving too quickly. There are numerous obstacles to overcome, as usual, not the least of which is the confusion caused by sellers; more on this will be covered later.