Our recently launched Innovation Culture Index reveals that globally, 92% of corporate banks are already significantly using the cloud or planning to make new investments in the next year. On a local level, banks are expected to invest 5-10% of their resources in cloud-based services in 2020, a figure that continues to grow year over year.
Banks are realizing that the cloud allows them to offer new services to their customers, improve the overall customer experience and respond more quickly to market demands. Knowing that cloud and hybrid cloud environments can be configured to meet required regulatory and security standards, banks realize that cloud capabilities are becoming a major issue for financial institutions looking to innovate.
Better customer experience through faster deployment
Mobile commerce and seamless digital customer experiences have become essential to business success over the past 10 years, with consumers and merchants expecting real-time service and intuitive use. Neobanks and fintechs – most of which were born on cloud infrastructure and focus heavily on user experience – are challenging the big four, adding additional pressure on incumbents to innovate and add value to customers .
Incremental improvements or minor value-added services, such as offering basic spend information and categorization, are no longer a unique selling point for customers. Banks need to think more broadly about what services and tools will truly change the game. For example, data-driven insights can be used to provide timely notifications to customers about their spending habits, helping them stick to their budget.
It’s important to remember that entering the cloud is a means, not an end. However, this is the first step in this journey towards an improved customer experience. Banks can reallocate time and resources traditionally spent maintaining IT infrastructure to activities that will delight customers. It also enables greater collaboration with fintechs and startups, streamlining IT integration through the use of application program interfaces (APIs) that fintechs can connect to more easily. This allows banks to offer a wider range of complementary services that strengthen the collective offerings of both parties.
Streamlining Operations and Scaling for Agility
Banks traditionally manage their own data centers, which can be expensive, resource-intensive and difficult to scale.
To illustrate this, imagine a scenario in which a bank is looking to expand its operations into a new country or territory. Historically, banks looked to purchase new data centers to ensure their network could handle peaks in demand. However, banks were spending millions of dollars to manage and maintain data centers that are only partially used. It was necessary to integrate these operations on a larger scale, which may not be achieved in the short term.
This operating model is very inefficient because the infrastructure must be ready to handle peak demand from launch, even though volumes are typically significantly lower.
Using the public cloud “operating expense” (OPEX) model, where services can be scaled up or down based on demand, provides much greater flexibility and cost optimization. This model also allows banks to focus their resources on customer experience innovation and faster product iteration, rather than behind-the-scenes maintenance.
Banks were initially hesitant to adopt the cloud because it requires moving sensitive data to a new environment, which is seen as opening the door to security breaches. It was important to engage regulatory bodies to ensure compliance of these systems. However, banks increasingly understand that large cloud providers spend more on security than banks would on their own. And these cloud providers can also engage national regulators and provide a holistic view, based on their experience in various markets globally. Additionally, hybrid cloud environments, which combine the benefits of a public and private cloud, allow institutions to take advantage of a “best of both worlds” approach.
Cloud adoption enables banks to deliver better user experiences, accelerate the pace of innovation and streamline operational costs: critical areas that are “must-have” for banks with the rise of agile and neobanks. agile fintech startups.
Phillip Finnegan, Managing Director Asia Pacific at ACI Worldwide
