By Alpesh Tailor, Executive Director at digital transformation specialist, GFT
From international transactions to the stock exchange, banking has long relied on up-to-date technology to operate successfully. Automation has provided real-time data delivery for banks whilst web technology evidenced in the rise of mobile banking has accelerated financial accessibility for the customer.
But, when it comes to the onboarding of cloud technology, banks have been uncharacteristically slow to adapt. The last 18 months have seen cloud technology adoption slowly increase with Deutsche Bank, Goldman Sachs, and Wells Fargo setting the precedent for cloud adoption on Amazon Web Services (AWS), Microsoft Azure, and Google Cloud technologies.
To understand what’s driving this transition, we conducted research using a global survey methodology to measure the sentiment and operations of 21 global banks of all sizes regarding their adoption of cloud technology. Aiming to assess the relationship between cloud technology and banking, the research highlighted the way the sector utilises the cloud right now and how its application can revolutionise banking operations going forward. One of its key findings was that bankers widely recognise the benefits cloud technology provides – a significant step forward for an industry that’s been slow to adopt the cloud until now.
Our research demonstrated that organisations within the banking sector acknowledge how technology can greatly assist scale-up opportunities. We found that 86% of bankers have adopted cloud services to harness unlimited scalability, citing a definitive change in transaction behaviour as the main reason.
The way consumers make purchases and organise transactions have changed, with a clear transition away from the use of physical money and toward digital payment methods. While the use of contactless, credit cards, open banking and Buy Now Pay Later (BNPL) systems have made transactions far more efficient for the consumer, it has surged the workload of banking’s traditional infrastructure to the point where it is no longer the most viable option for the future. To maintain information under banks’ legacy systems, more hardware is required. Hardware installation is lengthy and, by nature, finite, exacerbating the stress on banking systems whilst also providing a less secure and less efficient operation in the long term.
With cloud technology, the storage and tracking processes are expedited to the provider, taking the pressure off the bank’s infrastructure. Cloud technology enables a stable, flexible system capable of dealing with large transaction volume fluctuations in real-time. This gives banks the peace of mind that their payment processing systems are resilient to market fluctuations. To further improve the resilience of banking cloud operations, dependency on the cloud should not be limited to one provider.
A slowly increasing trend we’re now seeing in the financial services sector is a move towards multi-cloud systems. As cloud providers such as AWS, Google Cloud and Microsoft Azure release new services and platforms, the rationale for remaining with a single provider is getting harder to make and more organisations are considering diversifying their cloud technology. Indeed, our research supports this, with 76% of bankers agreeing with the importance of multi-cloud systems.
Using the cloud for cost optimisation is a primary reason the technology is gaining traction in the financial sector. Our research indicates 81% of bankers adopted cloud technologies to save costs.
Installing on-premise IT systems is time-consuming and can also be incredibly costly for large institutions like banks with many thousands of applications. When using the cloud, purchasing and installing hardware is no longer required as the cloud service provider hosts all the necessary storage hardware. The management of the hardware is also included with this, thereby reducing IT maintenance fees for the bank.
The high cost of acquiring dedicated hardware has, in some cases, limited the ability of smaller banks to expand and innovate, leading to a decrease in banking versatility whilst encouraging a global bank monopoly. This has limited consumer choice and fintech innovation within the sector, but can now be negated with less expensive and more accessible cloud technology. This is key to considering the future of banking, since increased competition should drive more innovation going forward.
Additionally, cloud systems work on a consumption model, with ‘pay-as-you-go’ or ‘subscription’ approaches, meaning that costs are very transparent. This enables banks to budget their storage use with far more ease. It also means banks only pay for as much storage as they need compared with them owning the hardware themselves.
Our research further illustrates that 62% of bankers believe organisational culture and inertia to be a key challenge within the sector. Besides flexibility regarding scalability and cost, adopting cloud technology can increase organisational efficiency by enabling banks to use fewer resources, for example managing deal volumes and payment infrastructures. Bankers recognise the opportunity for faster innovation, with 95% of the organisations we spoke to confirming that cloud technology can reduce time to market.
In turn, banks can focus on how to increase user transactions by confidently introducing payment systems that make purchases and transactions easier, without having concerns for the capability of their infrastructures to handle these changes. Cloud technology can help banks to streamline their organisational processes and prioritise growth whilst also preparing for the seamless adoption of new financial technologies as they emerge.
Overcoming misconceptions within cloud technology
Like any emerging innovation, misconceptions and misunderstandings about how a service or platform works can often crop up and our research found that’s certainly the case with cloud technology.
43% of the bankers we spoke to admitted that security concerns have impeded full cloud migration – a concern that we often come across often when speaking to other financial services institutions. This is in spite of the fact that cloud service providers invest huge sums of money into the security of their infrastructure which, as a result, makes it almost always safer than the traditional on-premise counterpart.
One of the more reasonable valid concerns around cloud technology is the digital skills gap. More than half of the banks surveyed claimed a lack of trained people internally that could support the rollout of cloud technology has slowed down their migration strategies. At GFT, we understand that this is a major issue for the adoption of cloud technology in banking, and across other industries, and have committed to training and encouraging young people to enter the cloud technology sector.
When looking at the future, cloud technology is an obvious and viable option for banks looking to evolve and save time, costs, and reduce risk in the process, not to mention its supremacy for scalability. Bankers recognise these positives and the overall findings of our research suggest they will continue to scales up their investment in cloud technology. Whilst the scale and capability of traditional legacy systems are finite, stifling evolution, we firmly believe cloud technology will continue to evolve to become the most viable option for the financial industry.