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March 2018		Citi GPS: Global Perspectives & Solutions
Figure 78. Lower Value Apps Like Engagement and Testing and Development are Likely to be Among the First Workloads to Migrate to the Cloud
Workload	Description	Inhibitors	Value

Enterprise app

LOB, dept app

Engagement app

File server, back-up, DR Messaging, collab, productivity Web

Test, dev

Security, sys mgmt., DNS Source: Citi Research

Mission critical business apps

Non-mission critical business apps

Customer-facing applications; social, mobile, IoT, customer community

Storage-centric applications

Email, collaboration, enterprise messaging, software PBX/voice

Web content hosting and serving, web-tier of enterprise and LOB apps

Copies of primary workloads and developer tools

Authentication, proxy server, firewall,

ITOM, ITSM

Must be re-written or re-bought/deployed to get most cloud advantage. Mission criticality drives risk aversion

Must be re-written or re-bought/deployed to get most cloud advantage.

Few inhibitors, most are "new on new" so little legacy to deal with

Data gravity of users and primary instance being on-prem can introduce latency

Compliance and unique requirements that can only be supported in IaaS

For web tier of on-prem app, can have architectural complexity

Cloud may not be supported in on-prem tools implementation and there may be compliance issues

Tends to follow the workloads it secures/manages

High

Medium

Medium

Low

Medium

Low

Low

Medium

And Core Banking Applications Are the Hardest to Address

While legacy core banking applications have many limitations including complexity, inflexibility and inefficiency, banks are generally wary of large scale core banking replacements or upgrades. Addressing the root problem of modernizing core systems is a daunting and expensive task. Changes such as these could touch every inch of an organization.

Rather, there are things that can be done to tinker around the edges that can have more immediate functionality results. For example, banks can modernize their channels (e.g., digital) and update the user interface layer so there is increased functionality for customers. We see different strategies to address legacy applications amongst our banks—which we discuss below:

Banks can choose to update portions of their core banking solutions – Given the cost and complexity of significant overhauls, banks may opt to ‘assemble’ and ‘endure’. By ‘assembling,’ we are referring to modernizing specific products or processes to gain enhanced functionality. The ‘endure’ piece refers to the portion of the IT stack that will go unchanged for the foreseeable future.

Decisions can be made on an application-by-application basis – Banks can buy ‘off-the-shelf’ solutions (SaaS or otherwise) to enhance specific functions. ‘Off-the shelf’ core banking solutions offer a very standard solution. To the extent that a bank wants or needs to customize, this adds to complexity.

It appears that configuration of a SaaS solution such as nCino may take upward of ~18 months. So while some solutions are considered ‘plug and play,’ it’s worth noting that in some cases it might not be that simple.

…or choose to build and/or replace with new solutions – Banks may choose to ‘build’ or “buy” specific components on a new platform and extract them out of the legacy system. This hollowing out of legacy core banking applications is a riskier proposition in terms of complexity, length of time and cost.

That said, it arguably may have a long-term benefit to the organization as the applications are modernized and customized for the bank’s needs. For example, JPM noted in its recent shareholder letter that “most of our digital solutions will continue to be built in-house due to competitive and strategic importance” with the company opting to build applications itself.

© 2018 Citigroup

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84	Citi GPS: Global Perspectives & Solutions	March 2018

In terms of cloud investments, we see various strategies – Strategies include building private cloud, leveraging public cloud providers or a combination of the two (hybrid cloud strategy). If we were to make broad generalizations, we would say that we tend to see the most progress on private cloud build-outs more among the larger banks. For the large banks, persistent workloads can be cheaper on a private cloud setting, although we think this math and ROI decisioning changes by bank size.

Both core banking systems and application work are being done – While core banking systems are not directly related to cloud, per se, the more modern the systems (loans, deposits, mortgage, etc.), the easier to hook into more modern technology. We are seeing some banks doing core systems work as a means to remain modern— and better position for cloud technology, big data, AI, etc.

We see signs of some banks re-hosting applications onto the cloud. Re-hosting allows for some cost save benefits. Other banks are looking to re-engineer applications to harness the benefits of the cloud (elasticity and scalability). Applications re-engineered into micro-services are more nimble and flexible – and allow for innovation and updates to adapt to changing customer demands.

For the larger banks, re-engineering applications might be the longer-term strategy as some applications are likely so customized that off-the-shelf solutions do not necessarily work for their complex needs.

Banks are focusing on consolidation of data silos and integration of data between different applications – Data quality clean-up (governance, common source and re-architecting databases) can help banks be more agile and flexible to adjust along with the technology landscape. This process is labor intensive and manual. We find that banks that have done work on application re-platforming and retooling with APIs are likely to show more meaningful progress towards integrated data.

© 2018 Citigroup