Why banks prefer a mainframe hybrid cloud architecture

Not so long ago, mainframe hybrid cloud for banks was little more than one of many options.

Now, it’s a strategic imperative.

Increasingly, progressive banks looking to thrive in the digital age are embracing hybrid cloud architecture and integrating their mainframes. It’s a high-performance solution to the perennial challenge of maintaining the secure, agile and reliable IT infrastructure demanded by the banking industry today, while also looking forward.

For decades, mainframes have formed the spine of banking operations. They provide robust processing capabilities, super resilience and unparalleled security. Mainframes handle massive transaction volumes with ease. According to IBM, they process something like 30 billion transactions a day, plus 87% of all credit card transactions, highlighting their critical role in banking.

Hybrid cloud architecture combines the flexibility of public cloud with the security of private cloud and on-prem infrastructure. It allows banks to scale resources on demand, enabling rapid responses to market developments. A recent Gartner report predicted that by 2025, more than 90% of enterprises will have a hybrid cloud infrastructure and platform. However, fewer than 10% have an effective multi-cloud strategy to address complexity, attain simplicity and take advantage of the opportunity.)

Integrating mainframes with hybrid cloud architecture offers the best of both worlds: Mainframe reliability and security, plus cloud scalability and innovation potential.

Cloud migration is gathering serious momentum

So says a 2023 Celent survey of financial institutions. Migration to the public cloud includes moving from legacy on-premises applications to the public cloud, as well as to the hybrid cloud and public cloud on IaaS, PaaS and SaaS.

Some technologies and processes, such as workplace systems that post and retrieve information with minimal data exchange, are better suited to the cloud. On the other hand, heavier, more complex solutions that manage massive amounts of data and transaction volumes are better suited to on-prem environments and run in mainframes. 

^{Source: Celent: Improving Operational Excellence While Migrating To a Hybrid Cloud, Multi-Cloud World – Report 2023}

Horizontal applications (especially customer-facing, front-office technology) are also moving to the cloud. These solutions often require real-time data and customer interaction for sales and service, and usually have low data requirements. As are mobile/online banking, call-center technology, Salesforce, CRM and advisory relationship solutions that combine agent-assisted sales and service engagement with digital self-service.

Mainframe hybrid cloud implementation helps modernize on-prem infrastructure, enabling greater automation, expanded self-service capabilities and flexible workload deployment and management.

Peerless security and compliance

Security breaches can have catastrophic consequences, so the mainframe’s reputation for stiffened security is a significant draw. Its ability to handle encryption and security protocols at scale is unmatched — an IBM Z mainframe can process up to 12 billion encrypted transactions a day.

Complying with regulations such as GDPR and PCI DSS is mandatory for banks. The mainframe’s robust audit and compliance tools provide a secure environment that helps meet exacting requirements. This is crucial because a single oversight can bring hefty penalties and reputational scrutiny.

High availability and reliability

Downtime is banking’s nemesis. Fortunately, mainframe systems are known for maintaining business continuity for decades. They offer high availability features such as IBM Parallel Sysplex, which enables banks to run a cluster of up to 32 servers in parallel, ensuring high performance and continuous availability (even during maintenance or upgrades).

This reliability is essential for “always on” banking. For instance, a Central European bank reported an impressive 99.99% availability after integrating its mainframe systems, underscoring the extraordinary reliability of its systems.

Scalability and hybrid flexibility

Banking workloads fluctuate with market conditions, customer behavior and transaction volumes. Mainframes are ideal for scaling up to meet peak demands without compromising performance. And when integrated with hybrid cloud services, the scalability becomes even more remarkable.

The hybrid model allows banks to leverage cloud resources for less critical, variable workloads while keeping core, high-volume transactions on the mainframe. This blend of on-prem high performance and cloud flexibility is perfect for banks that need to rapidly respond to fluctuating markets. 

In addition, banks seeking to grow through mergers and acquisitions have the assurance of scalability. Many that have adopted Hogan (running on the IBM Z mainframe) have been among the world’s fastest-growing banks.

Cost-effective modernization

Modernizing IT infrastructure is expensive. Importantly, a cost-effective mainframe hybrid cloud strategy allows banks to modernize without discarding existing investments and expand mainframe capabilities with cloud service agility. In fact, a leading U.S. bank leveraged this architecture to modernize several of its workplace applications, achieving a 70% reduction in processing time and significant cost savings.

Innovation and agility

The agility provided by a hybrid cloud model is a primary driver for digital innovation. Mainframe systems offer a stable, high-performance foundation. At the same time, integration with cloud services enables banks to experiment with the latest front-end technologies, including generative AI, machine learning (ML) and advanced analytics, without disrupting core banking functions. Banks can deploy a combination of ML cloud models to score mainframe transactions, enhancing the customer experience or improving risk management and tackling fraud.

Enhanced data management and analytics

The importance of effective data management is well known, and mainframes offer superior capabilities in managing vast data volumes. Banks can use cloud analytics tools to glean actionable insights, while their mainframe systems ensure high-quality, high-volume data is processed efficiently.

A long-standing DXC client, a large multinational bank, integrates mainframe data with cloud analytics to gain real-time insights into customer behavior, improving decision-making and customer service.

Inevitably, as a bank grows, its infrastructure becomes increasingly complex.

Cloud costs have also increased, e.g., driven by rising transaction volume and platform management. Consequently, banks are looking to accelerate hybrid cloud efficiency and procure the appropriate internal and external resources to make this happen. A recent report on the escalating cost of cloud computing found that spending had overtaken security as the #1 management challenge, and a lack of resources/expertise was next in line. 

^{Source: Celent: Improving Operational Excellence While Migrating To a Hybrid Cloud, Multi-Cloud World – Report 2023}

Mainframe hybrid cloud offers a streamlined solution to simplify IT management. The centralized nature of mainframes makes them easier to manage and secure. At the same time, cloud integration enables the rapid deployment of new services.

Simplicity and ease of management are crucial for banks, allowing them to focus more on their core business and less on complicated technological issues. 

An often-overlooked advantage of the mainframe hybrid cloud architecture is environmental sustainability. Combining agile cloud working with energy-efficient mainframes enables banks to optimize their data center footprint and energy consumption (data centers use around 1% of the world’s electricity), contributing to a greener planet. 

Consolidating Linux workloads on 5 IBM z17 systems instead of running them on compared x86 servers under similar conditions can reduce energy consumption by 75%, space by 50% and the CO2e footprint by over 850 metric tons annually.

Mainframe hybrid cloud architecture in banking is not just a technical choice. It's a strategic imperative, balancing the need for security, reliability and scalability with the agility and innovation demanded by digital working. By integrating mainframe resilience with the flexibility of cloud computing, banks can remain competitive, compliant and customer-centric. Success relies on using this to maximum effect, ensuring that banks not only master current challenges but are also primed and ready to exploit future opportunities.

As technology evolves, mainframe hybrid cloud strategies will play a pivotal role in banking’s digital transformation, mapping a journey that pairs tradition with innovation, stability with agility and performance with efficiency.

A mainframe hybrid cloud architecture harnesses the proven reliability and security of mainframes while embracing cloud scalability and innovation. This synergy is critical in an industry where trust and innovation are central to attracting and retaining customers. And while mainframe hybrid cloud architecture is laying a secure foundation, it’s also preparing the bank for a future where agility, foresight and an unwavering commitment to customer service are table stakes for attracting and retaining customers.

A Hogan-powered, mainframe hybrid cloud strategy brings you the best of both worlds

As a processor and system of record, DXC’s Hogan core banking platform has become the driving force behind many of the world’s most influential banks.

Now, we’ve enhanced Hogan’s exceptional mainframe hybrid cloud solution by combining the best IBM Z solutions with blueprints for banks with aging cores to be “migrated to the platform.” Or Hogan X can help you create a whole new digital bank.

Hogan X follows the BIAN (Banking Industry Architecture Network) principles of componentization and composability. It also utilizes zLinux and other containerized and cloud-native solutions. DXC can also deliver Hogan X in consumption-based, as-a-Service models. 

^{Source: IBM} 

A mainframe hybrid cloud architecture that includes IBM zSystems allows clients to select the best-fit infrastructure, optimizing costs, scale and sustainability while reducing duplication, strengthening security and delivering simplicity. All this while providing modern data access across your application ecosystem.

DXC and IBM are working to help banks optimize and transform their core banking systems, anticipating evolving customer needs and offering innovative solutions. The combination of Hogan and IBM z17, with its robust data-processing capabilities and enhanced security features, enables banks to protect data, ensure compliance and improve the customer experience through faster, frictionless processes. 

Speaking of innovation, the prospect of quantum computing is already changing how think about securing sensitive information and maintaining the integrity of essential applications and infrastructure.

Although practical quantum computing is several years down the road, we need to develop quantum-safe cryptographic strategies now, while we still have time to consider the business and social impact. Integrating crypto-agility with system modernization will be a massive undertaking for top-tier banks, involving the entire cast of financial services players and standards bodies (e.g., NIST), and will be underpinned by cross-industry cooperation at all levels.

Any classically encrypted (e.g., public-key cryptography) wire-tappable communications are vulnerable and already at risk, the idea being to “harvest data now, decrypt later” when quantum decryption solutions are finally realized. The IBM z17 provides extra protection by encrypting data wherever it resides: at rest, in flight and now in use with fully homomorphic encryption. 

Hogan-powered, mainframe hybrid cloud architecture is the preferred choice for banks. It allows them to keep their core systems of record (which run well on mainframes) but open them up to greater possibilities. Sensitive data is secured in a fully customizable private cloud infrastructure, and less-sensitive assets are shifted to one or more highly flexible, low-entry-cost public clouds. That said, banks cannot achieve this holistic solution without accurately aligning core and new systems and developing an exceptional customer experience.

Digital modernization eases cloud deployment, but greenfield implementation increases risk and budgetary pressure for a large-scale operation. Banks need to move at least half of their systems to cloud providers to realize even the primary benefits of cloud services. However, this can bring additional risk and inconvenience. While a private cloud might strengthen your control and resolve many compliance challenges, firewalls could inhibit collaboration and innovation. 

To learn more about how Hogan-powered mainframe hybrid cloud enablement works in practice, visit our website. However, if you’d like to delve deeper and discover what implementation could do for your bank, contact us.