Is Cloud Banking the Future?
Defining Cloud Banking
Cloud banking, a very attractive technology for banks, has not been adopted as rapidly as expected. But what exactly is cloud banking, and is it really the future. From increased accessibility to enhanced security measures, there are many reasons why cloud banking is hailed as the way forward. In this article, we will explore the drivers, benefits, & adoption model of cloud.
Cloud banking, also known as Banking as a Service (BaaS), refers to a financial model, where banks use cloud computing technology to deliver their services to customers. According to a recent Everest Group assessment of cloud efforts with more than 45 banks, just 20–30% of their workloads are on the cloud, with the majority of them being simple. To assure rapid wins with better returns, most banking and financial services (BFS) organizations have concentrated their early transformation efforts on client engagement, data analytics, and some horizontal operations such as HR and finance.
However, a few organizations are moving complicated industry-specific workloads to the cloud in order to get user experience and growth benefits such as omnichannel experience, secure transactions, and so on. Large BFS organizations are exploring the possibility of running complete sharing services in the cloud. Payments, mortgages, loans, and trade finance are all gradually shifting in this direction.
Why are banks migrating to the cloud?
The pandemic first had a negative impact on the whole BFS industry, followed by subsequent legislative reforms that have impacted operating models and core BFS services including as lending and payments. Furthermore, the expansion of mobile network operators (MNOs), payment service providers (PSPs), merchant aggregators, retailers, FinTech firms, neo-banks, and super platforms has resulted in a rapid restructuring of the banking and financial environment. This has had a significant impact on customer requirements, habits, and expectations.
This necessitated banks balancing their activities, managing competition, and adhering to rules. A modernised IT stack and cloud give the platform for balancing these three objectives while also acting as value generation levers. The following are the drivers and benefits for using cloud banking:
Key elements of a cloud first approach
For BFS executives to solve the above challenge and become cloud-first enterprises, it implies that even before actual cloud migration, they need to be cloud ready. Enterprises need their stakeholders to collaborate so their technology architecture and processes can be redesigned to avoid lifting and shifting legacy. This diagram acts as a business value equation for cloud for banks and as a step-by-step guideline for BFS firms to maximize value creation from cloud initiatives.
Morgan Stanley: Use Case of Cloud Driven Modernization
Modernization is the biggest driver of cloud migration in BFS transformation initiatives. Morgan Stanley is the best example for this. They have been accelerating their IT modernization to enhance client, employee & developer experience. It’s new application infrastructure will have common data models, cross-cloud connectors, workflows & APIs to fuse a high level of innovation, flexibility & scalability. Others banks have been following the lead. But where can a bank use cloud. Chart below provides modernization imperatives across the different technology layers.
Application of Cloud Banking and Business Models:
The cloud in banking can help both the top and bottom lines by creating new business frontiers and optimizing organizations. These areas are:
· Enterprise Synchronization: Improving Business Integration Through Data Sharing
· Business Innovation: Leveraging new-age tools such as ML, IoT platforms, and NLP to boost revenue and employee productivity.
· Skill Development: Embracing new skill sets around DevOps, DevSecOps, to improve automation
· Resilient Operations: Enhancing overall bank resilience by moving away from physical outages
· Security: Cloud solutions provide high IT security standards
· Business Scale: The cloud enables scaling computing costs as required to adapt to marking changes & financial priorities.
These services can be enabled by 4 cloud service models like Business Process-as-a-Service (BPaaS), Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) & Infrastructure-as-a-Service (IaaS). These can be deployed by BFS either in Private Clouds, Public Clouds, Community Clouds or hybrid Clouds.
Mitigating Challenges
Early adopters of banking firms’ journeys and approaches may be analyzed to identify four areas where banks must exercise caution when becoming cloud-first: cost predictability, change management, risk and data security, technology maturity, and talent and workforce preparation.
Conclusion:
Bank cloud adoption is more about allowing an ecosystem of open APIs, third-party systems, and AI suppliers to construct completely digital operations rather than about the capability of cloud computing. Compliance, which was formerly a barrier to adoption, has been overcome through re-engineered solutions, and more financial organizations are utilizing the public cloud.
Banks, on the other hand, must be wary of the issues that early investors encounter and invest in people to be cloud ready. The industry is already experiencing the first symptoms of a growing demand-supply mismatch for specialized technical capabilities. However, in the future, every bank will be cloud-based since it allows banks to create goods and experiences at a rapid and scale to meet changing client expectations.
References:
https://www.capgemini.com/wp-content/uploads/2017/07/Cloud_Computing_in_Banking.pdf
https://www.gartner.com/en/documents/4006735
https://www.compatibl.com/insights/cloud-computing-in-banking-2022/
