Two questions.

Do you agree that in just three years from now, every new core banking system that goes live will do so in the cloud?

And do you agree that any new bank starting now would be mad to go any other way than cloud?

These were two of the statements explored critically and thoroughly during a recent roundtable breakfast discussion in London, hosted by Finextra in association with Temenos.

The roundtable participants, a healthy mix of practitioners from established and new – and even yet-to-be – banks, broadly agreed with the two statements above, but behind that broad agreement were many nuanced observations.

For example, some participants felt that though cloud is surely the direction of travel even for big banks for core banking – the obvious benefits in terms of cost, security and speed of deployment being too powerful to deny – a target of 2020 for everything new being done in the cloud is ambitious. There are several potential drags, they suggested – not least vested interests in IT departments and the ever-present spectre of legacy.

And while cloud is certainly the preferred option for start-up banks, those present displayed a number of concerns in common with established players – including worries about how the regulators view cloud.

All in all, the discussion revealed that for financial institutions of all shapes and sizes the decision to move to the cloud is hedged around with complex considerations which are still being worked through.

True, the latest publication from the EBA tends towards simplifying the regulatory backdrop to cloud for banks. And true, the new banks that are cloud from the outset report compelling results in terms of cost and agility.

But it is also the case that for established banks the knotty question of how to migrate core to the cloud is still to be answered. And new banks have concerns that without the financial muscle of the big banks, the public cloud might not reach its potential for the financial industry. Interestingly some of the start-ups also expressed concerns about whether they can successfully implement their USPs in a cloud environment used by all banks.

In addition, it came across very clearly from the discussion that, out in the real world, firms are still grappling with the definitions and differences and similarities between public cloud and private cloud and shared infrastructure and dedicated infrastructure and infrastructure as a service (Iaas) and platform as a service (PaaS) and software as a service (SaaS) – and more importantly, they want to know whether the regulators grasp those differences and take a view on the safety or otherwise of cloud use across these different configurations.

All of this complexity notwithstanding – and slight disagreements over timescale to one side – it was nonetheless apparent from the discussion that cloud is the way to go for core banking. The vendors around the table reported that all new RFPs require the option of cloud (whether for immediate use or not). Small and new banks go to the cloud for 99% plus of their activities from the outset. Big banks are developing new stuff to be cloud native, and are trying to use the cloud where they can – and though they have to eat the elephant one bite at a time, they are committed to doing it.

For banks under margin pressure, the cost argument is compelling, not just in hardware terms but through the extra automation that becomes possible with cloud. The agility argument is also compelling – minutes to provision new infrastructure, and the viability of testing new products and ditching them if they don’t work, in order to try again. Even from a security perspective few would argue with the obvious truth that hyperscale cloud providers can spend more on this than any individual bank alone could ever do. Arguably, the revised Payment Services Directive (PSD2) makes cloud essential – as one participant put it, PSD2 puts beyond doubt the fact that “banking is an internet service”.

But it’s also the case that there is no ‘one size fits all’ cloud approach for banks. One attendee broke the landscape down thus: tier one banks will build platforms on IaaS; tier two banks will leverage PaaS; and tier three and four banks will leverage SaaS. And every tier one bank is a tier three or four bank somewhere.

Two very simple questions then with some very complex answers – but no denying that cloud is the future. As one participant said “it’s almost like a mindset” – one the participants in the roundtable discussion had clearly bought into, and one that will no doubt become more pervasive over time.