By Niall Twomey, CTO, Fenergo
Cloud technology has developed and evolved in line with the myths that surround it. Up until 15 months ago, banks were publicly reticent about moving core banking services to the cloud for a myriad of regulatory and security concerns, including issues over confidentiality of data, lack of control of data, data breaches, and legal and compliance issues.
However, a little over a year on, we see that banks are quietly making use of cloud technologies, with IDC Financial Insights expecting a tipping point to occur in the next two years for cloud uptake among APAC banks.
So, what exactly has prompted this turnaround from cloud being considered as the most frowned upon technology, with banks actively avoiding putting applications on it, to quietly leveraging the full capabilities that a cloud platform can offer?
The answers to this can be found in the benefits that cloud technologies can offer banks, which on-premise models simply can’t compete against:
- Significant Operational Cost Savings
Traditionally, banks’ IT costs are much higher than other industries. Every year, banks face the challenge of having to spend more to maintain infrastructure and run compliance and security technology, while also investing in digital services to remain competitive. However, at the same time, they are under constant pressure to cut costs.
In an industry renowned for hard-line cost-cutting, cloud technology must appear like a saviour.
According to a recent report by IDC Financial Insights, cloud delivers significant cost-cutting capabilities, enabling banks to slash infrastructure costs by a quarter, potentially saving banks up to $15 billion from cloud adoption by 2019.
Infrastructure-as-a-Service (IaaS) platforms such as Amazon Web Services (AWS) or even platform-as-a-service (PaaS) providers can remove the need to manage hosting, maintaining, updating and scaling service operations from developers and IT.
- Beating the Competition: Innovation & Customer Experience
Banks operate in an increasingly crowded and fiercely competitive industry. Digital transformation has one central aim – to deliver services faster, securely and more conveniently in a way that engages and satisfies customers. It places the customer and user at the centre of the design and delivery of services. If we take it that by 2020, an entire generation will have grown up in a primarily digital word, then banks need to innovate faster and harder than ever to keep customers engaged and satisfied
To do this in an on-premise world, a banking team would have to present a spec to IT, who would then try to find and allocate the budget and expensive hardware resources to deliver this project. A year or 18 months later, a prototype would be available to test. But by that time, you can be guaranteed that the idea will be obsolete and potentially already available in the market.
Compare this against a cloud-enabled environment. A banking team engages their IT team on a project. The developers spin up a server in minutes and prepare an app for testing in a matter of weeks. In this way, a bank can create and launch new and better applications far faster than competitors who are still using on-premise development practices.
- Close the Gap: Customer Relationships
Cloud technologies allows banks to provide a more consistent, digital experience across all customer-facing channels. It is fundamentally changing the way in which customers interact with data and their banking providers.
By extending cloud services to clients, banks can empower clients to update data and documentation to support ongoing maintenance of an accurate client risk profile for lifecycle compliance. This not only delivers greater efficiencies for the bank and more convenience for the customer, it also has the capability of facilitating a deeper, closer relationship between the bank and their customers through enhanced digital communications.
The idea of extending cloud-based services to clients will also help with regulatory client outreach programs designed to collect the data and documentation required to support and evidence new and evolving regulatory obligations.
- Increased Scalability & Firepower
Cloud technology enables banks to quickly scale processing capacity up or down in order to react to changes in customer demand (infrastructure elasticity).
Cloud-enabled banks can now move from an environment where it could take months to launch or update an application to where it now takes just days, sometimes even minutes.
Faster deployment of applications means faster turnaround times, enabling banks to free up valuable resources and budgets to focus on innovation, customer experience and growing the business.
All of this can reduce complexity and risk, while increasing efficiency of go-to-market strategies for new ideas, features and functionality that can improve efficiencies for the bank and the experience for their customers.
- Faster Disaster Recovery
Cloud technologies provide the flexibility to recover faster and more efficiently from an outage or other disaster. This provides a more reliable business continuity solution due to the distributed nature of storage and processing and the ability to shift data more quickly.
A recent news report quoted FINRA spokesperson, Ray Pellacchia, as saying, “The capability and flexibility to recover quickly is much greater, and it is far more cost efficient than operating your own geographically dispersed data centers”.
- Improved Regulatory Transparency
IaaS has the potential to standardize IT across an organization, making IT updates across a number of units of a complex international financial institution far more efficient and making it far more straightforward for regulators to have a clear picture of any organization.
Furthermore, in an effort to entice more financial services firms to its cloud services, Amazon has increased the number and locations of its global data centres to allow customers to remain in compliance with specific in-country data privacy rules and regulations. The coverage is still limited but for the regions that are covered cloud providers offer the ability for rapid region rollout.
- More Productive Staff
The cloud embraces the team-based collaborative culture of most modern organizations, which is transforming how people work together and share ideas and information across different teams, units and geographies. As cloud applications are accessible from any location, employees are now more productive and connected than ever before.
- Greater Data Mining / Analytics
Digital data production is set to experience exponential growth. In the CLM, space the ability to capture all client source data points, applying data quality rules to create a cleansed client profile and identifying the client risk profile requires the ability to store and process large data sets. The data sets are increasing as more input data points are becoming available.
Observing user actions, and client profile data changes leads to the opportunity for trend analysis, workload management and application insights. Thus, having a flexible infrastructure to support the additional data collection and processing is key to deriving those insights. The data sets are often held in data lakes, and processing capabilities to derive the client profile benefit from elastic scalability to deal with varying data loads.
For financial institutions to stay ahead of the pack, they must be ready to take on new challenges and innovate faster, better and cheaper than competitors.
In the age of banking digital transformation, cloud technology can deliver the holy grail of technological operations: quick deployment and faster go-to-market innovations that secure a positive client experience at a fraction of the cost of on-premise, while delivering higher operational efficiencies for banks.