Santander is plowing 5 billion euros ($5.6 billion) a year to put its legacy system data in the cloud, even as Openbank expands from Spain into 10 other markets. Botin calls it combining “supertankers” with “speedboats,” and suggested in a speech last year that Openbank could eventually become the platform for “a significant part of our business.”

The Spanish bank’s peers are adopting similar strategies. In the U.K., Royal Bank of Scotland Group Plc is working on digital business platform Mettle. Nationwide Building Society is working with 10x Futures technology while Lloyds Banking Group is doing something similar with cloud-native digital platform provider Thought Machine. Goldman Sachs Group Inc. started Marcus by Goldman Sachs in Britain after launching it at home.

‘Spaghetti Party’
Digital metamorphoses may be easier said than done. Years of mergers have left banks with core platforms patched together from disparate systems -- “a spaghetti party,” as Szafir puts it. For many, it may be simpler to start from scratch. Unlike a legacy platform -- like the plumbing in an old house -- native cloud platforms are like newly-built homes where the wiring is exactly where it needs to be.

“I sometimes refer to banks as museums of technology because they’ve got every generation of hardware and software within them,” said 10x’s Jenkins.

The native cloud platform developed by Jenkins’s company is being tried by banks such as Australia’s Westpac Banking Corp and Nationwide Building Society in the U.K.

Part of the efficiency of the new platforms is their business model built around customers rather than products. That cuts out data overlap such as names and addresses that on legacy platforms appear multiple times for each banking product.

Open Banking
The open architecture also paves the way for collaboration between financial institutions -- something that’s being encouraged by regulatory authorities, with the open banking initiative in the U.K. and the PSD2 directive in the European Union.

“We are moving toward where the bank is becoming a platform with an e-commerce marketplace,” said Oliver Bussmann, a former chief information officer at UBS Group AG and now CEO of Zug, Switzerland-based Bussmann Advisory AG. “You sell not only your own products but also get commissions for selling services and products from third parties.”

It’s leading to a bifurcation in banking, says 10x’s Jenkins. Larger lenders may choose to use their scale and brand recognition to become the distributors of products on their platforms, a bit like an Amazon. Smaller banks will become more like fintechs, specializing in certain products that they’ll sell on others’ platforms. Some, like Santander, will try to do both, Openbank’s Szafir, said.

New systems are already being tested on segments. Openbank’s platform is used for Santander Bank in Miami and could eventually be deployed for the U.S. unit as a whole. In the U.K., Lloyds is still in a testing stage with start-up Thought Machine’s Vault platform, said Zaka Mian, group director of transformation at Lloyds.

“We continue to test and learn to develop the confidence and certainty in the use of public cloud,” Mian said in a phone interview. “But if you look at the very long-term, do I think that us and many other banks will end up on technologies like this? More than likely, I’d suspect.”

This article was provided by Bloomberg News.

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