More and More Banks are Embracing the Cloud, what’s prompting the Shift?

The financial industry has seen a significant shift in the relationship between banks and the public could. With financial services historically reluctant to embrace the technology, they are fast becoming more likely to do so. According to the Culture of Innovation Index, recently published by ACI Worldwide and Ovum, 92 percent of corporate banks are making significant use of the cloud, or planning to make further investments in 2019/20.

 

But what has prompted this shift? While there has been some discussion about the role of regulatory attitudes, one of the reasons for the shift is that many banks now realise that the cloud is necessary if they want to digitally transform their business. It means they are able to reallocate their resources to focus on enhancing the customer experiences or compete with new entrants. Another reason is that financial institutions now realize that the cloud is secure, and that cloud providers have more spending power to maintain their clouds than maybe they have. In short, banks are fast realising that the cloud is an important tool to leverage the digital technology required for future success.

 

Improved customer experience through faster solution deployment

 

Over the past five to ten years, mobile commerce has become more prevalent and has given way to new expectations of customer experience from consumers and merchants who seek an improved and real-time experience. Pressure has also been placed on incumbents to deliver added value to their customers due to the emergence of cloud native neo-banks and fintechs who heavily focus on customer innovation. Within this arena, banks must transform their IT legacy and technology systems to remain relevant. Small incremental gains through the introduction of e-statements or self-service portals can no longer compete.

                                                                    

The emergence of cloud-native neo-banks and fintechs who have bypassed the heavy costs and resources of setting up data centres by adopting the cloud, has allowed these new players to focus heavily on customer innovation. This has placed immense pressure on incumbents to remain relevant within a competitive market and to deliver more value to their customers. A cloud-first strategy is key. To compete, banks must transform their IT legacy and technology systems, small incremental gains – for example through introducing e-statements or self-service portals – are no longer enough.

 

Traditionally, the process of connecting a bank to a fintech is arduous and complex, and can occur on multiple occasions if partnership is between more than one bank. Through the cloud, partnerships are made easier as banks can offer Application Programme Interfaces (APIs), which ultimately improves a banks automotive process. For banks to remain competitive and thrive in this arena, partnership with fintechs are vital. This mutually beneficial relationship strengthens their collective offerings, meaning that they can both capitalise on each other’s strengths to deliver an exceptional customer experience.

 

Cost optimisation

 

Historically, data centres were operated by the bank, an extremely resource and cost-intensive process. However, due to customer’s expectations of having access to infrastructure that works simply, banks have now needed to rethink this approach.

 

In a scenario where UK-based banks are keen to establish their presence on another continent, many in the past have had to purchase additional data centres to ensure resilient and meet peak demand. Meaning that for the large part of the year, the business spends hundreds of millions of pounds to run and maintain data centres that are only 10 per cent full – inefficiently working within a capital expense (CAPEX) model. Within this model, a bank’s IT infrastructure needs to meet peak demand, even if their volume is lower for the rest of the year. 

 

A more efficient approach to data centres makes use of the operating expense (OPEX) model, enabled by the cloud. Banks operating within this model can enjoy the benefits of elastic scalability and only pay for what they require, and have the ability to scale their data storage up or down depending on the needs of the business. Through this, financial institutions have the ability to focus their resources on what really matters – driving innovation and delivering an excellent customer experience through quicker product iteration.

 

A step towards true digital transformation

 

The hesitancy of many financial institutions to adopt the cloud was mainly driven by the fear of moving sensitive data offsite, fearing that they would be vulnerable to security breaches. However, banks are now beginning to realize that the cloud is now the most secure and functional environment for future technology development, thanks in part to the amount of money cloud providers are investing in developing their platforms.

 

The cloud is now being treated as an important step towards the digital transformation of a bank’s business, fostering the ability to run a more cost-effective operating model, while providing them with the agility to adapt to the ever-changing financial environment and enter new markets. Consequently, more attention can be focused towards delivering the customer experience required to remain relevant within a progressively competitive market.