Banking on the cloud: the new normal in financial services

By Anand Subbaraman, general manager, retail banking, Finastra

25 November 2019

The need to innovate and keep up with new market entrants has become the key driver in a bank’s strategic decision to adopt the cloud. Cloud is all about enabling business agility and rapid evolution with on-demand innovation to satisfy growing business needs - yet with no compromise on security and without the investment burden associated with legacy systems.

For many years moving to the cloud was perceived as a risk most banks were not willing to take. But as the cloud made its way into every aspect of customers’ everyday lives, challenger banks rushed to embrace the opportunity and the need for traditional banks to consider cloud adoption grew.

Neobanks like Monzo, Starling and Tandem are all built on the public cloud, setting the pace for newer ‘digital born’ fintechs soon to come to market.

So where does this leave traditional banks and how should they respond? According to new research undertaken by Finastra and EFMA with global banking executives, their main priorities for the next three years are digital transformation (cited by 81 percent of respondents), adoption of new technologies (66 percent) and innovation (56 percent).

And with 54 percent of banks saying they have a cloud adoption strategy that will be enacted within the next 12 – 24 months, it’s clear the tipping point for migration to the cloud has now been reached.

Security concerns have always acted as one of the biggest barriers to cloud adoption identified by banks in the past, but the huge investments made into cyber-security by providers such as Microsoft have convinced executives that the cloud is as safe as - if not safer than - on-premise legacy systems.

In fact, 15 percent of respondents in our survey stated that increased cloud compliance to security and regulatory standards was a major driver behind them adopting the cloud.

Cloud also simplifies, speeds up and minimises risks during the product development cycle. Product testing is an excellent example of a computing process which is best delivered in the cloud. It places a heavy burden on computing resources and can take unpredictable amounts of time. It substantially increases the peak capacity a bank needs to hold in-house, while also driving down the utilisation rate. This explains why the use of public cloud-based testing services has grown in the last few years.

It means that creative, innovative IT departments can take risks with designing and even launching new products in the knowledge that the computing capacity can be dialed up as required – but also decommissioned if no longer needed.

This enables a new level of agility in testing and launching new products which would otherwise not be possible. By being able to bring products to market quicker and eliminating some of the risks and costs of failure, cloud-based banks can adopt an entirely different attitude towards innovation which is simply not available to those banks with traditional IT.

By switching up and down its cloud capacity, a bank can quickly publish beta versions, use soft launches or pilot programs, and can just as easily reverse these moves as it accelerates their rollout. In other words, it can “fail fast”.

Cloud also makes sense in an era when banks are looking to reduce their IT overheads significantly, says Matt Frank, lead Cloud consultant, cloud transformation at KPMG: “The reality is that the cloud can help to solve many of the issues around cost because it is remotely managed, maintained and upgraded. The cloud model enables banks to focus on their core competencies and not spend time and human resource on managing data centers.”

Finally, new market paradigms based on a platform and open banking model are best served with a cloud-based environment. The cloud reduces implementation effort and smooths friction points because it can host the required tools: API gateways, identity and access management as a service, and cyber security as a service.

In this sense cloud serves to align with the desire to have agile innovation, be fast to market and ultimately attract and retain customers.

The cloud industry has matured in a very short space of time and providers have built close relationships with banking software players, enabling them to come to market with a joint proposition. Banks both old and new have the opportunity and a clear way forward to act decisively on their strategies to innovate - and keep up with the many market entrants set to emerge in the next few years.

Find out more, read the full whitepaper.

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