Over the last few years, the cloud has garnered a lot of interest from the banking industry. While the cloud has the potential to transform the ways banks conduct their businesses, it is critical that banks take note of a few myths before embarking upon a cloud-driven growth strategy.
From being a simple means to store non-critical data to helping banks innovate, the cloud has had an interesting role to play in the banking sector.
From 2010–2014, banks across the globe started taking note of the cloud and began formulating their respective cloud adoption strategies, with virtually one out of every two tech-enabled banks putting in place a roadmap for cloud adoption. However, the overall approach towards migration remained a cautious one. Banks were focused on optimising data centre costs by translating capex to opex and eventually rationalising the overall total cost of ownership.
For testing cloud migration, most of the banks shortlisted non-critical applications such as human resources, payroll and accounting instead of critical ones. The role of the cloud as a platform for data storage largely remained that of a supporting one—that is, cold data storage.
Over the next few years, banks began to experiment with migrating applications supporting business functions such as loan origination and management systems, application programming interface (API) management console and customer relationship management (CRM) onto the cloud.
However, the real trigger was the development of FinTechs. With their lean operating models and asset-light structures, FinTechs and challenger banks turned to multiple cloud providers for all storage and computing needs, making ‘cloud first’ a huge buzzword. In fact, it is said that with multiple cloud-based challenger banks giving traditional banks a run for their money, cloud providers are actually disrupting the banking industry without a banking licence.
This has made the banking industry develop a more strategic approach towards the cloud while broadening its usage of cloud services. The industry has started leveraging in-built analytics, project collaboration, machine learning and artificial intelligence capabilities for specific use cases directed towards the next best action and for building an ‘insights-driven bank’.
Over 30% of banks worldwide have said that more than 50% of their expenditure over the next 24 months will be on new cloud-based applications.1 These banks are expected to consume cloud services more innovatively. Some of the potential themes related to cloud adoption are discussed below:
Banks can significantly collaborate with their partners across the globe over cloud-based project management platforms, sandboxes, DevOps methodologies and modular software development facilitated by the cloud. Software modules could be located on servers of different cloud providers, and banks could use them for a truly decentralised, cloud platform agnostic software development. This could lead to even shorter proof of concept (PoC) sprints, essentially aiding firms to ‘develop and innovate fast, fail fast, and learn fast’.
Another interesting development last year was the adoption of the cloud by the Government of India. This could create interesting opportunities for banks to offer various government-to-person (G2P) services over the cloud in 2018.
Financial institutions are continuously optimising their omnichannel strategies. In addition to existing channels, they are likely to make innovative use of the Internet of things (IoT) and sensors for capturing customer data in real time, thereby generating a huge quantum of data along the way. The cloud can serve as a great platform to store and analyse the data collected across multiple touchpoints. It can also be leveraged to deliver insights in real time and aid banks in offering innovative and customised solutions to their end customers.
The year 2017 witnessed several sophisticated cyberattacks, with a few well-known firms falling prey to them. Cloud providers that adopt global best practices and deploy the latest security features swiftly will continue to assist banks in protecting their customer data and managing risks as they grow.
The cloud does indeed present unique opportunities for banks of all sizes to offer differentiated products. However, banks need to understand that a simple shift to the cloud will not automatically resolve all issues, especially in the current set-up and governance framework. A few myths—for instance, cloud migration will always result in cost savings and applications will always work better in the cloud—need to be busted. Moreover, regulations related to the cloud remain a grey area across the world. The General Data Protection Regulation (GDPR), to be enforced from May 2018, may pose further challenges related to data privacy. Banks need to perform a thorough cost-benefit analysis, build a sound ecosystem around the cloud, address various challenges and, in general, avoid the ‘me-too’ trap by designing and executing the best fit cloud strategy for further growth.
1. IDC. (2017). IDC MaturityScape Benchmark for Cloud in Banking in Asia/Pacific reports 80% of banks in Asia/ Pacific will run on hybrid cloud by 2018. Retrieved from https://www.idc.com/getdoc.jsp?containerId=prAP42386217 (last accessed on 8 January 2018)
Partner, India FinTech Leader, PwC India