When it comes to technology and innovation, financial institutions have always been keeping their ears to the ground. Nowadays, a bank’s technological proficiency and the quality of banking software development services it receives directly impact the institution’s competitiveness. For example, institutions that were first to capitalize on the advent of mobile banking have already managed to become leaders in their respective markets.
Paradoxically, cloud computing, one of the most attractive and promising technologies for the banking sector, hasn’t been adopted as rapidly as one would expect until recently. Today’s surge in popularity of cloud migration can be attributed to two main factors: the pandemic and the rapid invasion of competitive and cloud-native fintech companies. As a result, in 2020, renowned financial institutions like Wells Fargo, Goldman Sachs and IGN started announcing partnerships with the world’s leading cloud providers like AWS and Azure.
In its late 2021 survey, The Economist Business Intelligence Unit found that 72% of IT executives in the banking sector consider cloud adoption the key strategy for achieving its business goals. In this article, we will discuss why the cloud is now a go-to technology for banking digital transformation, and how financial institutions can accelerate its adoption.
Cloud Banking Advantages
Here are the main advantages of cloud banking:
Increased Agility and Innovation
Cloud-enabled agility is perhaps one of the main advantages of cloud adoption in banking. In the last decade, the basic needs and expectations of an average consumer, regardless of the industry, have changed significantly. Quick service and convenience are now among the decisive factors in customer satisfaction.
In a nutshell, most incumbent banks’ core legacy systems have insufficient technological capacity to react to rapidly-changing customer demands and market dynamics. Fintechs and neobanks, on the other hand, leverage their cloud-native infrastructures to deliver new solutions and software updates at a much faster pace. Cloud environments allow them to streamline the adoption of industry-defining technologies like big data and AI. At this point, the cloud is a key enabler of agile technological innovation in the banking context.
Cost Reduction
According to the aforementioned EBI survey, 43% of IT executives cite cost as the main driver of cloud adoption. Indeed, the cloud offers great opportunities for banks to minimize various costs associated with on-premise system maintenance.
Organizations no longer need to spend budget and human resources to instal and maintain hardware as cloud vendors take care of these operations. Importantly, the cloud also allows banks to easily add and remove services based on their current needs and business objectives. The absolute majority of cloud hosts charge companies based on the storage they currently use. In the meantime, with on-premise IT systems, financial institutions sometimes spend exorbitant amounts of money on storage they don’t even use.
While cost reduction is often associated with increased revenue, the link between the two is rather indirect. Still, industry leaders can use freed-up budgets to enable growth by exploring readily available cloud-native technologies.
Cloud Banking Adoption Tips
Cloud migration is one of the most effective yet risky initiatives a modern financial institution can take. While cloud migration strategies will substantially differ from organization to organization, we would like to share two crucial tips that will apply to any bank.
CEO Involvement
This is one of the most overlooked aspects that can verify the critical importance for cloud adoption. In the 2021 ITaaS survey, McKinsey reveals that companies who reap the most benefits from the cloud are 32% more likely to have a high degree of CEO involvement. Cloud adoption requires often distant parties like the CIO, CTO, HR personnel and other departments to be highly coordinated to ensure smooth cloud migration and reap the most benefits from it in the future. And, the CEO is the only suitable candidate for orchestrating communication between these parties and ensuring that each of them has the resources to make the migration happen.
Staying Compliant
While compliance is important to all companies regardless of the industry, it is an especially sensitive topic in the banking sector. Realizing the inevitable mass cloud adoption among banks, financial regulators have already started to define emerging risks and provide guidelines for mitigating them.
From US FINRA to UK’s Prudential Regulation Authority to the European Banking Authority, the message is loud and clear, vendor lock-in is among the most critical risks that every bank needs to carefully assess and minimize. Turning to multiple cloud providers instead of relying on a single vendor is not only an important regulatory matter but also a viable business strategy. Besides significantly lowering downtime risks, migrating to multiple cloud environments allows banks to take advantage of price differences on similar services and vendor-specific specialized services.
To further prove the point, the aforementioned McKinsey study reveals that outperforming companies are 9% more likely to develop comprehensive compliance guidelines before initiating its adoption.
Conclusion
In the banking context, the cloud has often been considered a solely cost-cutting method. With the rapid technological advancements of the cloud and fierce competition among vendors, the cloud has become one of the most potent methods for generating revenue and enabling business continuity.
Andrey Koptelov, Itransition
