With changing consumer expectations, new business models, and emerging technologies, there is a growing need for banks to strategize for the future.
The increased adoption of cloud computing for banking is a gradual but clear indicator of this shift. Cloud is a focal point of interest for C-suite executives and board members alike. As banking leaders increasingly acknowledge the importance of cloud for data storage and applications, its usage is on the rise.
The top providers of public-cloud services now offer ‘products-as-a-service’. This is helpful for banks in revenue generation, cost-control, better customer insights and the delivery of market-relevant products and services. It is also helpful in the monetization of enterprise data assets.
Cloud offers opportunities for enterprise synchronization, breaking down data and operational silos across finance, customer support, risk etc. When massive data sets are accumulated in one place the organization can apply analytics for cross-functional insights.
Cloud benefits include:
1. Improved operational speed
Banks generate and store huge amounts of data. Cloud computing helps in the centralization, storage and interpretation of this data. It reduces the costs of data warehousing processes and generates precise insights that can be leveraged across the organization.
2. Increased data security
Cloud service providers regularly assess their products for security vulnerabilities and offer security updates on a rolling basis. Cloud computing is designed for data centric industries. Consequently, the security credentials of cloud technology are growing at a faster pace than anything on-site infrastructure can offer.
3. Improved customer insights
The banking industry is becoming increasingly competitive. There are challenger banks and fintechs that have expertise in certain financial verticals that pose significant challenges to traditional financial institutions. Open banking regulations like PSD2 means that banks need to improve their customer service to compete in a new environment. One of the ways traditional banks can compete is by using cloud technology to create richer insights and deliver better customer experience.
4. Decrease in costs
The costs incurred in storage and maintenance of on-site infrastructure and security patch updates are bypassed by switching to cloud technology. Cloud also reduces costs by requiring less employees to manage. Cloud services allow banks to regulate their use and only pay for what is required.
Types of cloud computing
When a business decides to adopt cloud computing to replace their legacy systems, there are many ways to make this transition. The approach of moving gradually into an increased adoption of cloud is popular. Mixing and matching different hybrid models to suit your needs can be a wise approach.
Three models for cloud adoption
Basic applications of Cloud Computing in Banking
- Fraud detection and prevention is one of the primary applications of cloud computing. By analyzing large amounts of data from various sources, banks can detect suspicious activities before it poses a threat to the organization
- Data analysis is another major function of cloud computing in banking. Using advanced analytics to discover customer patterns and preferences, banks can create better offers and products to suit their needs
- Cloud customer relationship management allows processing of customer interactions and data, regardless of time or location. This makes it easier for banks to offer personalized solutions to their customers.
The COVID impact
Even before 2020 there was a pressing need for banks to upgrade their customer service for the digital age, and since the pandemic hit, it became a necessity.
If customer experience is inadequate, they won’t hesitate in taking their business to another bank or financial institution. With this digital acceleration, banks became proactive about their use of data efficient, cloud-based services. With many banks already taking measures to incorporate cloud technology extensively into their business and operations models.
Risks involved in delaying cloud integration
While the myriad benefits of cloud technology should be enough to convince most financial institutions, change is difficult and banks hesitate to embrace cloud computing due to a number of reasons.
There is significant risk and complexity in replacing existing systems and transitioning from legacy technology. Previously, cloud computing may also have been perceived as risky due to possible security-related issues. However it has come a long way over the years and evolved to become a data security yardstick.
The next challenge in embracing a new technology is the changes required in management and organization. This transition requires thorough planning and execution which is difficult for any industry, even more so for banks, which are typically large, highly-regulated organizations.
On the other hand there are several risks involved in delaying the shift to cloud. Slow adoption gives your competitors time to upgrade and gain an edge over you, in terms of customer experience.
While Cloud is an indispensable tool for banks to compete in the digital age, there are hurdles and challenges along the road to adoption. There is also a need for robust risk management in order to identify and tackle threats as and when they appear.
Adoption issues can be overcome if the IT infrastructure of the organization works in compliance with stringent project management, security and data protection protocols.