By Ciaran Chu, Head of Public Cloud, ACI Worldwide
In recent years, there has been a significant shift in the relationship between banks and the public cloud. While financial institutions were initially reluctant to embrace the technology, they are now amongst the most likely to do so. According the Culture of Innovation Index, recently published by ACI Worldwide and Ovum, 92 percent of corporate banks are either already making significant use of the cloud, or planning to make further investments in 2019/20.
But what has prompted this shift? While there has been some debate about the role of regulatory attitudes, I believe it mainly comes down to the fact that banks now realise that the cloud is a key enabler towards the digital transformation of their business which allows them focus on activity which enhances their customer experience and compete with new entrants. Coupled with the understanding that it is secure and that cloud providers have more spending power to maintain their clouds, banks are fast realising that the cloud is a clear requirement to leveraging the digital technology required for their future success.
Improved customer experience through faster solution deployment
As mobile commerce has become more prevalent in the past five to ten years, consumers and merchants increasingly expect a better and importantly real-time customer experience. At the same time, neo-banks and fintech’s (most of which are cloud native and focus heavily on customer innovation) have burst onto the scene, adding further pressure on incumbents to up their game when it comes to delivering added value to their customers. In this environment, making small incremental gains, through for example introducing e-statements or self-service portals, no longer cuts it. Instead, banks have to transform their legacy IT and technology systems to remain relevant.
Entering the cloud is the first step on this journey towards digital transformation. It enables banks to focus time previously spent running and maintaining costly IT infrastructure, on activities of greater importance to their customers. Additionally, it allows them to partner with fintech’s more easily.
If fintech’s want to connect to banks that are not in the cloud, both parties have to go through a lengthy and complex process, not just once but multiple times if they are partnering with more than one player. Whereas once in the cloud, banks can offer Application Programme Interfaces (APIs) that are much easier for fintech’s to connect to. This is important because the banks and fintech’s that will thrive are those who partner together and capitalise on each other’s strengths to deliver a best in class customer experience and strengthen their collective offerings.
Historically, many banks ran their own data centres. But as this is extremely resource and cost- intensive, and customers expect the infrastructure to simply work, banks have had to rethink their approach.
Imagine a scenario where a UK-based bank is looking to establish a presence on another continent. In the past, the bank may have had to purchase additional data centres to ensure resilience and meet peak demand. However, this meant that for most of the year, the business was spending hundreds of millions of pounds to run and maintain data centres that are only 10 percent full. This is an example of banks working in a capital expense (CAPEX) model, a highly inefficient and cost intensive as your infrastructure needs to meet peak demand, even if your volumes are lower for the rest of the year. Adopting the cloud enables banks to move to an operating expense (OPEX) model, where they can enjoy elastic scalability and only pay for what they need. This gives them the agility to scale their data storage up or down depending on the needs of the business. It also enables financial institutions to focus resources on what really matters: driving innovation and delivering an excellent customer experience, through quicker product iteration.
As the cloud negates the need for banks to buy data centres (and carry out the domestic compliance requirements that go along with this) it gives them the ability to expand into international markets more easily.
One of the main reasons banks were initially hesitant to adopt the cloud is because they were afraid that moving their sensitive data off-premise and into the cloud would leave them vulnerable to security breaches. However, they are increasingly coming around to the fact that the big cloud providers are spending more on security than they ever could on their own.
Adopting the cloud enables banks to run a more cost-effective operating model, while providing them with the agility to adapt to the ever-changing financial environment and enter new markets. Ultimately, this means they can focus their time and effort on delivering the customer experience required to remain relevant in an increasingly competitive environment.