The Future of Banking: Daniel Calugar Explains Why Cloud-Native Systems Will Replace Legacy Alternatives

Companies across all sectors are adopting cloud-based software services to help power different aspects of their operations. Yet, experienced investor Daniel Calugar says many traditional banks have been slow to fully transition from their legacy systems to cloud-native ones.

In recent years, though, this has begun to change. With the exponential increase in fintech startups stealing the spotlight — and many customers — away, traditional banks have had no choice but to think outside the box in order to keep up. This includes taking a look at advanced technology that they may not have considered otherwise.

Now, you’d be hard-pressed to find a banking executive worth their salt who doesn’t believe cloud-native systems are the way to go. A 2018 Accenture survey found that 80 percent of the top banking executives said that if they don’t upgrade their company’s current technology to become more flexible and capable of supporting innovation, they’re bound to fail.

It’s worth noting that the Accenture survey was conducted nearly five years ago. Today, that number is probably even higher. And with good reason, as cloud-native architecture has many benefits.

Below, Dan Calugar will explain some of these benefits, which include increased agility and decreased operational costs. He’ll also examine the role of cloud technology in enabling banks to deliver faster and more reliable services.

What are Cloud-Native Systems?

Cloud-native systems are not to be confused with cloud-based systems. They are similar, of course, since they both have to do with the magical, mystical “cloud” — or servers that are accessed through the internet. 

Cloud-based systems are what came first in the development of this technology. Certain software packages, for instance, transitioned to cloud-based rather than installations on your local computer.

Think of major programs such as Microsoft Office, which used to require every computer to have its own installation and unique certification key to use the program. The data that was generated from that suite of programs then had to be stored locally on the computer’s hard drive or uploaded to an internal company server.

Then, Microsoft created Office 365, which was a cloud-based version of Office. Instead of local installations and unique certification keys, each user just needed a monthly subscription. This allowed all the Office programs to be hosted in the cloud and updated from there.

Cloud-native systems take that concept one step further. With cloud-based systems such as Office 365, only a portion of the entire system is on the cloud — the software in this case. The rest — or the data that’s produced by the suite of programs — is still stored locally in most cases.

The difference with cloud-native systems is that all applications are built, deployed, and managed in environments that are based in cloud computing. From a general perspective, this provides a wealth of advantages, allowing companies to use applications that are extremely resilient, flexible and scalable.

These systems are easy to update on the fly, their data can be analyzed in real-time, and customer demands can be met in a matter of seconds.

Today, cloud-native systems serve a number of industries, but nowhere is the impact greater than it is in banking.

What are the Benefits of Cloud-Native Systems in Banking?

The advantages of cloud-native systems are easy to see once you realize the power of what can be done through these systems. But how does this relate specifically to the banking industry, and why is the future of banking on the cloud?

Daniel Calugar answers those questions by providing the main benefits of cloud-native systems for the banking industry.

Lower Costs

Legacy banking systems are huge. The sheer number of computers, servers and related equipment that’s needed to store, maintain and secure all the data that banks produce is hard for most people to visualize. That brings with it significant cost — and doesn’t even include the salary and benefits for the employees who are tasked with creating, maintaining, fixing and administering the system.

Cloud-native systems help to lower these related costs in a number of ways.

For example, the infrastructure is designed to maintain and update itself automatically on a continuous basis. These cloud-native systems use artificial intelligence and machine learning capabilities to stay up to date, putting them far beyond what any legacy banking system is capable of.

As a result, banks can realize large cost savings by not needing either the physical equipment or manpower that legacy systems require.

Better Cost Predictability

Sticking to the same theme, Daniel Calugar says that cloud-native systems provide banks with better cost predictability. Legacy systems require large purchases of IT equipment and services, as mentioned before. Once those products are purchased, they are the bank’s property.

If the bank grows quickly and needs more equipment, it must go out and buy it. If, in a couple of years, it starts to shrink and doesn’t need as much IT infrastructure, they’re still stuck with that equipment. There’s nothing they can do to “downsize” the IT infrastructure or reduce the costs.

With cloud-native systems, banks only pay for what they’re using at the current time. This allows them to grow significantly — and quickly — and only take on added IT costs as the growth is happening. 

Then, if the bank falls on some challenging times, it can similarly scale down its IT infrastructure and reduce costs in the meantime.

This all ultimately leads to a better financial outlook for the bank itself.


Banks can become extremely agile organizations thanks to cloud-native systems. When legacy banking systems require new environments, it may take a few weeks to get them off the ground — including the budget approval, purchasing, installation and deployment phases.

Cloud computing uses what’s known as container technology, which enables deployment with one click that uses IaC, or Infrastructure as Code. Complete systems can be deployed in less than an hour using this process, and resources can be reclaimed quickly.

In layman’s terms, this allows banks to go to market exponentially quicker with innovative financial services and products compared to legacy systems. It also allows banks to make changes and updates to parts of their offerings based on customer feedback, allowing the innovation cycle to happen quicker and easier.


Scalability in terms of cloud-native systems doesn’t just refer to the bank’s ability to scale overall as a company, but rather its back-end and how it processes the huge amounts of required data.

Overnight, the systems that run banks have to process and then copy a tremendous number of files. All of this must be done in a certain time period after one banking day ends and before the next one begins. This means that it all must be done efficiently and on time.

In legacy systems, O&M, or Operations and Management, handle all of these functions. These are manual, not automated, controls that include constant monitoring and alarms should issues arise.

When cloud-native systems handle batch processing, though, they can automatically scale down or up based on the current and actual needs of the system, including the usage of the CPU and its latency. 

All of this ensures that the data is properly processed on time so that the banking system can remain stable for the peak operating hours — when most people are trying to access it.

Better Security and Compliance

Security and compliance are two things that go hand-in-hand in banking. The industry is highly regulated when it comes to security measures so as to protect the vital personal and financial information of customers around the world. 

Banking systems must also have high availability and not be down for long periods of time. To ensure this happens, legacy systems have to use information technology architecture based at multiple sites and inter-connected to each other, with one serving as a potential backup switchover in case another site goes down. 

This can be quite difficult to manage and often needs to be done manually. In contrast, while cloud-native infrastructure handles this in a similar way- with repeating architecture at multiple sites- the switchover can happen automatically.

Not only that, but cloud-native systems are better at identifying issues and making the switches quicker, in addition to correcting any problems so they don’t repeat themselves in the future.

From a security perspective, cloud-native systems also utilize artificial intelligence, machine learning and automation to identify and eliminate threats before they become full-blown breaches.

Data security can become seamless with cloud-native systems, ensuring that banks are always able to remain compliant with the strict regulations around security and safety. Processing a massive amount of data instantly is one of the additional benefits of using a cloud-native system, as it can detect and then prevent threats as they present so they never develop into a serious security problem.

The cloud-native systems have these security and compliance integrations built into their applications and infrastructure, so they don’t have to be manually deployed. Dan Calugar says it’s a very proactive approach to security and compliance that banks frankly can’t do without today.

Better Customer Experience

Much of the talk about cloud-native systems has focused on the benefits to the back-end of the banking industry. Yet, there are significant benefits that it provides to the front-end as well, specifically as it relates to the customer experience.

Today, customer experience is one of the main focuses of even large traditional banking institutions, as many customers are fleeing in favor of smaller local banks and fintech firms that are able to meet the customer where they are at and with what they need.

The younger generations don’t care nearly as much about the brand power that long-standing big banks have. They’re more interested in the offerings of the financial institution and what it does for them. For most, this all starts with an impressive digital product suite.

Almost all banks today offer at least some form of digital services. Yet, many are still far behind their fintech counterparts. 

Cloud-native systems allow these banks to close the gap between themselves and their fintech counterparts. They enable banks to improve the digital products they offer customers, meeting their demand for speed, personalization and comprehensive services. 

As Dan Calugar mentioned before, cloud-native systems allow banks to develop new services for their users quickly and then deploy them instantly once they’ve been tested and approved. And when the banks receive real-time feedback from their customers about these new digital offerings, they can easily and quickly make changes to reflect the general consensus. 

This all results in a better user experience, which goes a long way in attracting new customers as well as retaining current ones.

Easier Collaboration

Speaking of fintech companies, not all large traditional banks want to get into the technology game. In fact, for some, it doesn’t make any sense from a business standpoint.

They know they need to be able to provide an impressive digital suite of offerings to their customers, but maybe they don’t want to be the ones to actually develop the idea, create the applications, deploy, and maintain them.

If the banks are on legacy systems, it can be challenging for them to work with outside partners who could provide these digital services to them. There would be major security concerns with giving third-party companies access to the legacy systems, and there could even be some compliance issues with doing so.

And even if access wasn’t an issue, it would still be complicated and complex for the outside partner to complete, which would drive up the cost of outsourcing the service.

However, if banks are on cloud-native systems, the collaboration process with outside companies becomes a cinch. Using application programming interfaces, banks can give third-party companies access to their systems without compromising the safety and security of their data and that of their customers — ensuring they remain compliant.

The contractor providing the digital services would have everything they’d need through these interfaces and would actually have an easier job in terms of creating, integrating, and deploying the offerings.

In other words, cloud-native systems allow traditional banks to partner with fintech firms if they want to, so they can provide many of the impressive digital tools that so many customers desire without creating and maintaining those systems on their own.

This cuts down the cost significantly for the bank and reduces the amount of risk, too.

Less Risk and Tighter Focus

Building on the idea of reducing risk, cloud-native systems allow banks to focus on what they do best — providing a wide range of financial services to consumers — without having to spread themselves thin by hiring a large team of IT professionals, and collecting, managing and maintaining large amounts of data on servers they own.

Not only does this reduce a lot of work, but it also significantly decreases risk. This is because the banks are able to pass on the risk of data security and compliance, in a sense, to companies that “do that for a living.” In a way, it’s akin to a company outsourcing its IT services to a professional IT firm rather than hiring an in-house IT manager.

In addition to the decreased risk, cloud-native systems allow banks to hone in their focus on just the financial services that are their bread and butter. No longer do they have to spread themselves thin and dedicate time, effort, and significant resources to an area that simply isn’t part of their core competency. 

This means the banks can pay attention to their customer’s needs without having to worry about the labor-intensive processes that are required to deliver on those needs. Legacy systems stand in the way of banks being able to do that. Cloud-native systems enable it.

Banks Finally Make the Move to the Future

All of these are clear reasons why cloud-native systems are truly the future of banking and why they will one day completely replace legacy systems, according to Daniel Calugar.

This isn’t just conjecture or hypothesis, either. Major financial institutions have made the move in recent years, thanks not only to the explosion of competition from fintech startups but also due to the changing needs and desires of consumers and, in a large way, thanks to the COVID-19 pandemic.

In 2020, major banks such as ING, Goldman Sachs, and Wells Fargo all formally announced they were partnering with some of the leading providers of cloud services in the world, such as Azure and Amazon Web Services. 

A survey conducted in 2021 by The Economist Business Intelligence Unit reported that 72 percent of all information technology executives who work in banking said that the adoption of cloud computing was an integral strategy for how their company would achieve their business goals.

It’s clear that the future of banking is now, and it’s all based in the cloud.

About Daniel Calugar

Daniel Calugar is a versatile and experienced investor with a computer science, business, and law background. While working as a pension lawyer, he developed a passion for investing and leveraged his technical capabilities to write computer programs that helped him identify more profitable investment strategies. When Dan Calugar is not working, he enjoys working out, being with friends and family, and volunteering with Angel Flight.