The news: A minor technical failure took down Amazon Web Services (AWS) for several hours. Disrupted financial apps reportedly included Chime, Coinbase, and Venmo. Some financial institutions (FIs) were also reportedly affected.
More on this: As financial institutions (FIs) and their vendors increasingly move services to the public cloud, their reliance grows on the robustness and uptime for services like AWS, Microsoft Azure, and Google Cloud. While these platforms are extremely reliable, perfection isn’t guaranteed, and disruptions aren’t easily isolated.
Worse has happened: A global technology outage last year triggered by a Cloudflare software update took down services for at least eight banks, each with more than $8 billion in assets. Millions of customers were affected, with problems with self-service tools like digital banking particularly noticeable.
The back story: FIs greatly depend on specific technology vendors. Core banking systems—which are banks’ fundamental recordkeeping systems and frequently bundle software for products and services more complex than retail deposits—were first developed in the 1960s and have gone through decades’ worth of iterations.
As they’ve aged, banks have struggled to support modern software. And increasingly fragile technology stacks pose a risk to a bank’s ability to operate without fear of failure. Some banks have replaced their core banking systems, while others have introduced modern integration platforms that make it easier to add new systems without risking a major disruption.
Our take: A mistake in a digital transformation project or a poor choice of vendor can have far-reaching consequences for a bank’s customer relationships and compliance with recordkeeping regulations. The solution for banks that can afford it has been redundancy through hybrid deployments to the cloud and on-premise.
Headlines about widespread disruptions are scary. But latent risks in existing systems don’t make the news, and small failures don’t last long enough or affect enough customers to draw notice. But avoiding modernization means waiting for a crisis from which it’s hard to recover.