Banking on the Hybrid Cloud: What Big Banks Can Learn from Neobanks

Ever since neobanks appeared on the scene, big banks have had to come to terms with a new competitor. Neobanks are glorified mobile-first banks that have a far more agile approach to customer service, allowing them to offer a much more personalized touch to their clients’ query resolution. For big banks, new strategic changes such as embracing a hybrid cloud model as an agile IT backbone shift are imperative. They now need to capture the most agile, cloud-empowered banking services that neobanks offer. 

In this article, we will discuss the fundamentals of hybrid cloud banking and assess its adoption patterns and challenges. We will also explain the major insights that traditional banks need to adopt from digitally savvy banks to thrive in the changing environment.

What Is a Hybrid Cloud for Baking?

A bank hybrid cloud is an IT architecture that integrates a private cloud (on-premises, proprietary infrastructure) with a public cloud (a third-party-provided service). The two disparate environments are structured to interconnect in a manner that data and applications are not isolated in individual silos. 

Why is this important for modern banks?

Financial institutions struggle to gain control and ensure security for sensitive data and core operations. Meanwhile, they also seek to reach flexibility, scalability, and cost efficiency in a public cloud for non-sensitive workloads and innovative applications.

The hybrid cloud banking model enables financial institutions to strike a balance between private and public clouds. For instance, a bank can store its customers' financial records on a hybrid-private cloud to comply with data residency regulations. Simultaneously, it can run customer-facing mobile applications and other analytics on public cloud servers. This would allow the bank to integrate mobile applications with the private cloud in a seamless manner.

Now, you might wonder what is digital banking and how it relates to cloud computing? See, digital transformation in banking industry has resulted in the appearance of online platforms like mobile apps and websites that allow financial service users to conduct transfers, pay bills, and apply for loans from anywhere and anytime. That is a digital bank, and it functions on cloud computing technology.

Hybrid Cloud Adoption in Banking

Market analysis estimates that the cloud finance industry will be worth over USD 51 billion in 2026, with projections to reach roughly USD 217 billion by 2034. This denotes a 19.78% CAGR over the next 9 years.

In 2025, an LSEG (London Stock Exchange Group) industry survey stated that 82% of orgs already function on a multi-cloud or hybrid-cloud basis. This implies that the transition to flexible cloud infrastructure is ongoing. 

Banks are no longer in the exploratory phase. They are increasing investment. The same report states that 87% of financial services firms report that of all cloud expenditures in the last two years, over a quarter fueled spending focusing on scalability, revenue growth, and AI enablement.

How Traditional Banks Can Learn From Neobanks  

New entrants in the market, such as Revolt, Nubank, Monzo, and other digital-only companies, have completely altered the banking industry trends with their rapid growth and technology-focused strategies. With these changes, existing banking giants such as JPMorgan Chase, HSBC, and BNP Paribas have something new to observe and rethink their strategies.

Let’s summarize the most important things traditional banks can learn from neobanks.  

Agility and Reaching Market Quicker

Revamped agile strategies have enabled existing banks to break free from the historically long release cycles and siloed IT structures they endured in past decades.

For example, JPMorgan Chase devoted resources to Agile and DevOps practices to improve their software delivery processes, achieving over a 70% increase in code deployment within two years and greatly improving development efficiency. 

Other large banks, like ING, have implemented agile transformations that seek to diversify into smaller cross-functional teams that are more easily able to adapt. The focus for these banks can be summarized as adopting the agility of hybrid cloud in banking, which is:

• adopting flattening hierarchies;

• encouraging rapid prototyping;

• embracing DevOps automation;

• promoting culturally rewarding speed;

• facilitating adaptability.

Innovation Culture and Business Models  

Neobanks cultivate innovation cultures that maintain and encourage experimentation as well as rapid scaling of novel concepts. They usually begin with a niche or singular offering (like a basic checking account). Then, they incrementally branch out into offering more services through innovation or bank hybrid cloud partnerships. 

Take Revolut, for instance. This bank started with a multi-currency travel card. Within a few years, it has expanded the system to include cryptocurrency trading, stock investing, insurance, and more.  

Typically, neobanks are cloud-native fintechs that have a penchant for seamless integration with other fintech offerings through APIs. This allows for the embedded banking within other ecosystems or the adoption of “Banking-as-a-Service” models. Neobanks tend to have flatter and more tech-oriented hierarchies that encourage trying new features (and failing fast) as a learning mechanism. This is a lesson for larger banks to adopt a more entrepreneurial approach. 

Cloud-Native Technology and Architecture  

Neobanks had a head start because they came into existence during the cloud era.

See, legacy core banking systems weighed down traditional banks. Neobanks, however, constructed their systems on modern cloud-native architectures, which included APIs, microservices, and cloud databases. 

Nubank, for instance, scaled to over 100 million customers in seven years and was able to serve them all for a low cost. This is one of the best examples of a neobank that leveraged cloud systems to expand internationally. Withdrawal, deposit, and transaction data from Nubank is processed in seconds; data is also ingested almost in real-time. The bank credits its cloud architecture for permitting what is described as industry data processing, product design, credit modeling, and personalization.  

There are many lessons yet to be learned. For greater clarity on those, we have listed the differences between traditional banks and neobanks in a comparison table.

Benefits of Hybrid Cloud Banking

The main argument for adopting hybrid cloud banking comes with undeniable value propositions that tackle the needs of the financial services industry. The benefits of cloud migration span a wide range, from significant cost reductions to increased innovative capabilities.

Challenges of Cloud-based Banking

Mixing solutions cloud computing offers with on-premises infrastructures can yield a plethora of advantages, but the flip side still exists.

• Integration with Legacy Software: Mainframe systems are still a popular method of storage among large banks. They are not user-friendly, and integrating with other hybrid cloud storage bank systems is a task that requires skilled professionals. If not designed thoughtfully, differing structures will create impenetrable walls for data flow and slow down the speed of data retrieval.
• Security and Governance Complexity: The security and operational requirements for a hybrid cloud banking IT architecture are more complex than for a bank using a single private cloud and public cloud infrastructure. Each bank must put in place a unified security policy to manage encryption, access, and threat management for all platforms used. Protecting operational RIAs while still enforcing security access rules and remaining compliant can drive significant operational overhead.
• Data Residency: Each bank will face unique operational RIAs based on the cloud bank operations, such as the geographic access restrictions. For globalized banks, there is a "mosaic" of different data residency and local cloud provider restrictions. This can impact the directory of data center locations of choice in public cloud providers.
• Vendor Lock-in: Moving to a different provider or multi-cloud in the future can become difficult and expensive. The main reason for this is the increased dependency on a single public cloud provider. A mitigation strategy must be put in place, and in the case of banks, it will most likely involve the use of open standards and multi-cloud management tools, thus exposing the risk of using those standards and tools.
• Cultural Skill Gaps: The integration of a hybrid cloud banking model will require staffing in architecture, DevOps, and IT security, raising the need for new skill sets. Many financial institutions face a shortage of in-house experts, thus requiring new ones or training existing ones. This is also a shifting technological need and will require a change in culture, driving more agility and teamwork between IT and other business units.

Any risk in migrating to the cloud can be effectively addressed if you have sufficient resources or a reliable partner. Learn how to choose a software development company to select a vendor who will deliver exactly what you expect.

How to Start Implementing a Hybrid Cloud in the Banking Sector

Adopting a hybrid cloud in banking requires a shift in organizational structure in addition to a change in technology. Below, we outline the three key aspects you need to keep in mind to maximize your success. 

• Understanding what the current infrastructure comprises is the most logical first step. In the banking context, this means looking into the existing applications, the sensitivity levels of the data, and how data is used;
• Due to heavy regulations imposed on the banking sector, you should have a careful plan for migration at hand to avoid penalties or resource-intensive reviews. Non-critical services are recommended for migration in the first phase. This allows for the testing of performance and refinement of processes for the organization, which builds on the confidence of the organization while tackling the more complex core applications. Implementing feedback loops for tracking data resource usage in the controlled agile rollouts helps to foster confidence;
• To efficiently navigate a hybrid cloud in banking, a strong governance structure must be put in place. In this case, there is a need to formalize security, user login, and vendor management rules. Banks require a solution that provides enforcement of encryption, unusual activity verification, and integration with existing security apparatus. It is best to resort to nearshore software development to handle this task with ease. 

Here are seven essential steps for successful transition:

Hybrid Cloud Implementation Challenges and How to Address Them

Implementation of hybrid cloud in banking comes with certain obstacles. We will dwell on the most pressing ones while offering mitigation ways.

Underestimating Integration and Migration Efforts 

One of the biggest mistakes is underestimating the workload of banking legacy system modernization. This can cause delays, overspending, and disruptions to the company’s work and systems.

Mitigation tips:

• Avoid “big bang” cutover strategies. Instead, phase migrations and have roll-back plans;
• Test integrations in a staging environment that simulates the hybrid configuration to catch issues in the cloud and integration early. 

Neglecting Exposure and Compliance Risks

Security and compliance protocols cannot be overlooked. A classic example is relocating datasets or migrating certain workloads to cloud environments and later discovering a miscompliance or security breach. 

Mitigation tips:

• Involve risk and compliance from the onset;
• Embed classification and control safeguards prior to migration;
• Automate Infrastructure as Code security checks;
• Follow updates on regulative changes.

Lack of Network Infrastructure and Resilience Strategies

The value of a bank hybrid cloud model is realized with a well-integrated network. A frequent error is not reserving adequate backup network capacity on the cloud and on-premises. This can create service degradation or complete service denial that is detrimental to customers. 

Mitigation tips:

• Always plan for backup network connections and use SD-WAN to optimally route traffic. Ensure that the disaster recovery plans are current and account for the hybrid model—cloud involvement may change certain roles and procedures;
• Don’t wait for a real incident to uncover a non-functional plan and test failovers between private and public cloud environments instead.

Uncontrolled Cloud Sprawl and Cost Management Issues 

Failure to manage cloud sprawl can push costs way out of control. One danger is permitting teams to manage cloud services on their own. This may lead to cloud sprawl and unforeseen expenses due to duplicates and orphaned systems. 

Mitigation tips:

• Implement tagging and usage monitoring from the outset for seamless integration and effective management.
• Audit the parts of the cloud infrastructure that are not being actively used. 
• Set up automated shutdown of non-essential resources to prevent incurring unnecessary costs. 

When costs are kept in check, cloud spending becomes transparent and manageable, and the cloud does not suffer from the sticker shock it is often associated with.

Neglecting Workforce Dynamics

Lastly, a non-technical but pressing risk is neglecting the workforce and workflow adjustments that a bank hybrid cloud brings. The adoption of a cloud in the banks’ ecosystem usually calls for the breaking of silos among the development, operations, and security departments (the adoption of DevOps and DevSecOps models). If the organization’s culture is change-averse, for instance, the teams stubbornly hold onto legacy methods of infrastructure provisioning and there is a hesitance towards automation, the hybrid cloud will miss its opportunity. 

Mitigation tip:

• Foster a culture of agility, advocate for safe-to-fail innovation, and drive the processes towards more agile, flexible frameworks. In the absence of these, the technology may end up being underexploited, or worse, exacerbate the friction with legacy processes.

Customer Experience Impacts

Hybrid cloud for banks is useful only with regards to how it is used to enhance customer experience (CX). Today's banking customers require personalized service, continuous access, and innovation. If leveraged properly, hybrid cloud services can yield a lot of value in these areas:  

Enhancement of Service Delivery and Continuous Uptime

Customer service reliability and availability for customers can be greatly transformed with hybrid cloud infrastructure. Workload distribution across private and public clouds can optimize service uptime. If one environment experiences problems, critical business functions that serve customers can fail over to the alternate environment, greatly reducing downtime. This is very important for services such as online banking, mobile applications, and payment systems which are used by customers round the clock.  

Personalization and Analytics

Public cloud infrastructure provides immense capabilities for big data analytics, machine learning, and AI, which can yield insights from the bank’s data. For instance, with the help of hybrid cloud storage for banks, financial orgs can now gather and analyze customer data across disparate systems (while still maintaining compliance) to enable hyper-personalization.  

AI services hosted in the cloud can analyze customer spending to gently encourage budget compliance, detect anomalous transactions for potential fraud, and even power customer service chatbots driven by conversational AI (ex. ChatGPT-based systems). Here, a hybrid solution is optimal: critical personal information can be kept in the private domain while sensitive personal data is retained in the private domain, and anonymized or non-sensitive data is processed in the public domain AI.  

New Services and Innovation

The hybrid cloud for banking customers to receive additional and better services and gets access to faster cycles of innovation and newer technologies. Service providers are always adding new features of AI and ML Models, Blockchain Services and even Open Banking APIs. These features can then be scaled or disabled as the customers are wanting to use them. This kind of flexibility is unheard of for banks relying on on-prem solutions. 

The lack of cost to experiment coupled with the cloud model elasticity allows banks to innovate and experiment rapidly, furthering the trope of “fail fast and learn faster.”   

Seamless Omnichannel Interaction  

Immediate information access on the cloud during customer service interactions improves the quality of service provided as cloud connectivity synchronizes information across the enterprise. One of the advantages is the ability to eliminate data silos, allowing all fiscal departments visibility into real-time customer data. With accurate and instantaneous data, customers can resolve inquiries and issues faster even responding in real-time. In turn the experience is enhanced across channels. For instance, a customer can start a loan application online and finish in-person at the bank. With hybrid cloud, documents are stored and information can be retrieved easily, hence no resubmission is needed.  

Optimizing Hybrid Cloud Investments for Financial Institutions

Banks using hybrid cloud have an opportunity to increase the ROI if they actively monitor and manage their hybrid cloud infrastructure. However, this will require more than just the installation; continuous adjustment and oversight will also be necessary.  

To maximize ROI, banks can take advantage of the public cloud’s consumption-based billing. For hybrid cloud strategy in banking to yield positive results, financial institutions will have to take two vital steps: 

1. Adjust spending strategies to focus on real-time financial optimization;
2. Enforce rigorous cost control policies and limits. 

This is what is known as FinOps. For example, preset policies can be put in place to automatically remove under-utilized sandbox resources. Measures that prevent the allocation of costly services or impose limits on end-users are also necessary. 

Final Word

The future of business banking seems bright. Banking executives consider adopting the bank on a hybrid cloud as a cross-enterprise evolution that spans technology, compliance, and corporate culture as an integrated system. Looking into early adopters, their best practices and learnings (from JPMorgan’s controlled cloud rollout, DBS’s multi-cloud innovation, CBA’s cost-saving move, to Taishin’s resilience-building) demonstrate that a balanced approach works best. It is safe to suppose that cloud success hinges on careful and robust governance and planning, but it should also be approached with ambition. Talk to us today to get the upper hand in cloud computing solutions. Intellectsoft will help you find the right vendor and move to the cloud without prolonged downtime.