The banking industry is experiencing a massive transformation, primarily driven by evolving customer expectations and rapid technological advances.
With consumer-focused companies like Amazon and Netflix offering seamless digital experiences, customers expect their financial institution to offer the same efficient, digital and personalised service.
However, low interest rates and new regulations are weighing on the top line, while high compliance costs are eating into the bottom line. The net result is that many, if not most, financial institutions are struggling to earn their cost of capital while also adequately enhancing the customer experience.
While the challenges facing the financial services industry may appear daunting, opportunities abound. In fact, there is a viable solution for advancing digital initiatives that positively impacts bank operations, interfaces between systems and, most importantly, promotes a consistent, high-quality client experience: the cloud.
Cloud computing is no longer just an option for banks that want to compete at the highest level; it’s a strategic imperative
Cloud computing is no longer just an option for banks that want to compete at the highest level; it’s a strategic imperative. The savviest banks have already turned to cloud computing, which not only promises productivity and efficiency gains, but also the chance to compete on a level playing field against nimble upstarts in the fintech space by providing a digital and seamless customer experience.
For a variety of reasons, European banks have been slower to adopt the cloud than their North American and Australian counterparts. But that attitude is quickly changing. According to International Data Corporation, cloud spending is expected to skyrocket. By 2021, banks globally are forecast to spend more than $12 billion on public cloud infrastructure and data services, up from $4 billion last year. Banks that want to stay competitive will have to follow suit, lest technologically superior peers steal market share.
Banks have been understandably slower in migrating products and services, and leveraging the benefits of the cloud. However, as cloud computing has increasingly proven to be a reliable and cost-effective opportunity, it’s now an essential ingredient of competitive banking and meeting customer expectations. As such, it’s necessary to appreciate the central role that efficiency plays in not only a bank’s short-term profitability, but also its long-term solvency.
Consolidating operations into a cloud-based platform helps automate manual tasks, eliminate paper and increase transparency, which lead to massive efficiency gains. Case studies at IBM suggest that an effective cloud strategy can reduce a bank’s infrastructure and software application costs by 40 per cent.
The average client of nCino, which provides a cloud-based digital banking platform, experienced a 17 per cent reduction in operating costs and 22 per cent increase in staff efficiency after deploying the Bank Operating System. Specifically, an nCino client in the UK noted that the platform helped play a part in ensuring the bank is able to transact loans as quickly as possible with average transactions, from first meeting to cash disbursement, being completed in weeks, compared with six to nine months for traditional high street banks.
As tantalising as efficiency gains are, many banks have hesitated to embrace the cloud fully because regulators have not laid out clearer guidelines around its use. However, as regulators in the UK and European Union make concerted efforts to spur competition and innovation, it appears increasingly likely that the floodgates could soon open.
In fact, regulators have themselves begun using the cloud for data storage and reporting, including the Financial Industry Regulatory Authority, which works with Amazon’s AWS. To this end, Deutsche Bank predicts that use of the cloud by banks will ramp up “materially”.
Opportunities to increase efficiency and reduce costs are only some of the cloud’s primary selling points. An additional and valuable benefit concerns security. As cyberthreats continue to materialise, security standards need to transmute to counter those threats and protect data.
This is why securing data behind the heavy security blankets of cloud providers has become such an enticing proposition. Given the size and sophistication of the leading cloud companies – be it Amazon, Google or Salesforce – there’s no question that they are among the world’s most responsible stewards of data. According to BBVA: “Cloud platforms are developed with connectivity in mind by specialised companies with very little legacy constraints, which makes them potentially more secure.”
For those relying on ageing servers, networks and infrastructure, security concerns abound, but banks are realising that security and privacy can simply be done better. Moving from on-premise datacentres to the cloud alleviates many issues, including providing a more reliable business continuity solution, as well as the ability to move data more quickly.
While many financial institutions still rely on archaic software to power their day-to-day business, modernising these legacy systems will benefit not only the bank, but more importantly the customer.
The silos that exist between disjointed legacy systems lead to a fragmented view of the customer. Firms that lack a complete picture of a customer life cycle, for example knowing that a home buyer applying for a mortgage should trigger a homeowner’s insurance promotion, miss out on important cross-selling and relationship-building opportunities. As a result, non-bank and alternative providers are creating niche products, which consumers have been quick to adopt.
Streamlining processes and conjoining the back and front-end of bank operations via a single cloud-based platform enables banks to offer the speed and convenience to compete with nimbler startups, while also strengthening relationships.
By adopting cloud-based tech, forward-thinking financial institutions can take advantage of new, secure technologies to meet intensive compliance standards and also give customers exactly what they want: fast and convenient access to their money and a modern, digital experience. The banks that recognise these needs and deliver a seamless solution will be the winners in the long-term and be well positioned to overcome any regulatory barriers to success.
It’s not so much a question of if a bank should move to the cloud, but when.
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