The global financial services industry is on the cusp 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 Lifecycle 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.
Are you ready to invest in the cloud?
Over the last two years, especially, the cloud has transformed from being perhaps the most frowned-upon technology in the banking industry, due to security and regulatory concerns, to an area of growth, opportunity and better client experience. While many banks today are still very cautious of the cloud (particularly in terms of what they put in it), the benefits of adoption are very obvious. 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. In the next five years, the financial services industry will look very different than it does today. Cloud adoption will be very much innovation-as-usual enabling all banks to become cloud-first firms that prize speed, innovation and accessibility.
For further information on the benefits of cloud-centric banking, download Fenergo’s Banking on the Cloud for Client Lifecycle Management whitepaper.