by Niall Twomey, CTO, Fenergo.

The global financial services industry is on the brink of a massive technological disruption. The emergence of fintech (financial technology) and regtech (regulatory technology) vendors has created a tech race for banks, helping to fast-track the innovation path for many of them.

Conversely, it has also highlighted the laggards, weighed down by legacy systems and investments, leaving them struggling to keep up with traditional bank competitors and the new fintech newcomers.

Cloud innovation is fast becoming a fundamental driver in global digital disruption and is increasingly gaining more prominence and cogency with banks. In fact, it is predicted by that 2020, a corporate no-cloud policy will become as rare as a no-internet policy is today.

Why Banks are embracing the Benefits of the Cloud

In the past, traditional enterprise organizations that operate in heavily regulated industries and handle sensitive data have veered towards on-premise technologies in an effort to keep their data locked safely away in their own data centers and behind own firewalls.

Even up to a few years ago, any suggestion of putting this sensitive data in the cloud was generally not well received, mostly due to security concerns. This is especially true for the financial services industry, which has actively avoided entrusting data to the cloud, fearing the searing heat of regulatory scrutiny should that data become compromised in a breach.

The areas of Client Life cycle Management (which includes client and legal entity data management, KYC, AML and regulatory compliance, and client onboarding) were particularly sensitive to cloud, given the amount of client data and compliance rigor that needs to be protected.

Fast forward to today, the financial services industry is addressing many of its cloud concerns and putting to rights the myths that have grown exponentially about cloud infrastructure.

According to research published by BBVA, banks are already widely using cloud computing for non-core and non-critical uses such as HR, email, customer analytics, customer relationship management (CRM), and for development and testing purposes. In particular, smaller banks have more readily made the transition to cloud by moving entire core services (treasury, payments, retail banking, enterprise data) to the cloud.

Faced with a new market dynamic that fintech and regtech firms have introduced over the last number of years, banks now find themselves in a digital transformation race – against not only traditional banking competitors, but against new competitors whose very business model revolves around the use of a myriad of new technologies – among them the innovative capabilities of the cloud.

Improving Regulatory Transparency

The cloud offers three major options for deploying regulatory solutions, namely, Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS). In the regulatory space, more and more banks are now rapidly embracing deploying their regulatory applications on the cloud to take advantage of scalability, lower capital costs, ease of operations and resilience offered by cloud solutions. Due to the differing requirements on data residency from jurisdiction-to-jurisdiction, banks need to choose solutions that allow them to have exacting control over transient and permanent data flows. Solutions that are flexible enough to be deployed in a hybrid mode, on a public cloud infrastructure as well as private infrastructure, are key to allowing banks to have the flexibility of leveraging existing investments, as well as meeting these strict regulatory requirements.

Our Banking on the Cloud for Client Lifecycle Management paper is the first in a series exploring the potential of new technologies on front, middle and back office banking operations.

We explore the world of cloud-centric banking and the benefits it can deliver to banks spanning the commercial, business, investment, corporate, private and retail banking divides.

Moreover, we will also discuss the potential of cloud for Client Lifecycle Management (including data management, compliance and client onboarding operations) and the key considerations to be borne in mind when migrating from on-premise to cloud.