Cloud technology in banking: why rapid adoption is the key to innovation

GFT looks at the challenges faced by financial institutions in modernising their IT estate and moving to modern, scalable cloud-based technology. With many thousands of applications built over many years the process needs a co-ordinated plan. If not now, when?

by | March 7, 2022 | GFT

Modern banking relies on automation and is often one of the first industries to adopt new technologies to improve functionality and efficiency. Internally, banks are supported by advanced data handling whilst customers have benefited from advances in telecommunication technology, especially with mobile banking.

It is therefore intriguing the banking industry has been one of the slower sectors to adopt cloud technology and enjoy its benefits. A myriad of legacy IT systems and wave of disparate data has meant migrating to the cloud for many banks, was a challenge they were not ready to face.

In recent years however, we have seen a rapid acceleration, with Deutsche Bank, Goldman Sachs and Wells Fargo being pioneers in adopting cloud technology.

As leaders in digital transformation, GFT were keen to understand why banks are now more open to adopting cloud technology and what held them back before. We conducted a second global survey measuring the sentiment and operations of 21 banks of all sizes regarding their approach to cloud adoption.

This research provided us with an understanding of how banks are using the technology now and how cloud providers can continue to adapt their offerings to remain central to the future IT strategy of banks.

Increasing capability

It is important to assess why banks are increasingly open to adopting cloud technology; the key trend throughout the research found that 86 percent of bankers adopted cloud to facilitate unlimited scalability. As consumers are increasingly demanding capabilities to transfer more money, at a quicker rate, with easier processes, technology needs to scale to adapt to this, and cloud has been able to provide this.

Cloud computing offers banks dependable and flexible data systems which support the modernisation of their processes. An influx of challenger banks in recent years has meant traditional high-street banks now feel increased pressure to migrate to the cloud. The shift has ensured they are able to respond to new consumer expectations with innovations such as open banking, buy-now-pay-later and contactless payments. Challenger banks either tend to be ‘born in the cloud’, or have fewer legacy processes and applications, making it easier for them to quickly migrate to the cloud.

Cloud providers, such as AWS, Google Cloud and Microsoft Azure, are responsible for the management and storage of data which reduces pressure on bank infrastructure. Faster data processing and large data processing capabilities also allow for real-time tracking and results.

Banks are increasingly adopting a multi-cloud approach, utilising multiple cloud providers to improve resilience and scale. Our research supports this notion, with 76 percent of bankers agreeing on the importance of multi-cloud systems.

Optimising costs

The increasing cost of installing and maintaining on-premise legacy IT systems, along with the large personnel requirement, is a key factor pushing banks to adopt cloud technology. GFT are confident this is a key reason for banks seeking greater cloud adoption, since our research suggests 81% of bankers adopt the technology as a cost-saving measure.

By outsourcing and using a cloud service provider, banks mitigate the cost of purchasing, installing and maintaining hardware, all of which is managed by the cloud provider. While most challenger banks have gained their success through an understanding and appreciation of the benefits of cloud technology, many of the smaller banks have experiences stunted growth due to the high costs of maintain their legacy hardware and systems. Cost-effective cloud solutions allow such banks to innovate and scale without the cumbersome and expensive overhead of using their legacy technology.

In comparison to traditional on-premises IT systems, cloud technology works on a consumption basis, only charging the bank for the amount of storage used. This subscription model is efficient and cost-effective for banks as they essentially ‘rent’ what they need rather than paying for unused storage. Increasingly, the efficient use of cloud storage can be scaled up and down according to the processing power and storage needed at any particular time.

Supporting organisational change

Efficiency and organisational culture are becoming higher priorities for banks, as businesses are seeking a more balanced approach for their employee workloads. Adopting cloud technology supports the banking industry as firms ‚flex and experiment, allowing for faster innovation and reducing the need for as many resources to get the job done. Ninety five percent of bankers in GFT‘s research recognised how cloud technology supports innovation by reducing the time-to-market for new services.

The time and resources saved with the use of cloud technology means banks can offer better payment systems for consumers as well as better internal processes without scalability or capability concerns, which previously was limited by the size of a bank’s legacy datacentre.

Understanding and knowledge

GFT‘s research highlighted the key reasons for a hesitation to adopt new technology as being fear, misunderstanding and a lack of knowledge regarding how a system or platform works. Forty three percent of surveyed bankers highlighted concerns regarding security had prevented them from committing to full cloud migration. It is clear this concern continues to persists, despite cloud technology having proven itself to be more resilient to the traditional security challenges faced by banks managing their own legacy IT.

Although cloud service providers continue to reassure customers of the safety of their systems and invest considerable sums of money into infrastructure security alone, banks still express a high level of hesitancy in a move towards the wholesale adoption of cloud technology.

Looking to the future, banks are increasingly open to scaling up their investment in cloud as they recognise the many positive aspects of the technology and increasingly towards a multi-cloud adoption. This is seen as an increasingly obvious development for the banking industry, given the many benefits that cloud technology offers, including: timesaving, efficiency and the enormous flexibility of being able to scale the IT estate on a daily basis as the needs of the business change.

To find out more about GFT’s cloud capabilities, download their latest paper here.

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