Business velocity and customer satisfaction boosted as banks move to cloud native

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At a time when business velocity and innovation are critical to success, more and more banks are embracing a cloud-native approach to application development and deployment.

The move has led to the realization of value around key business priorities, such as:

  • Creation of individualized customer experiences through continuous innovation thanks to cloud-native agility and flexibility
  • Development of customer insights using big data and analytics applications enabled by elastic and scalable cloud-native architecture
  • Compliance with regulatory reporting requirements through burst processing in the cloud
  • Data transparency to comply with regulations such as PSD2, CMA, GDPR, and CRS by developing secure APIs for an ecosystem of partners.

What is cloud native?

Cloud-native application development allows firms to build, test, and deploy new software-based products and services at high velocity and with low risk. Cloud-native applications do not just run in the cloud, they embrace the elastic scalability and “anti-fragility” (when stresses and failures add strength, not weakness, to a system) enabled by it. Applications built this way can scale and deploy rapidly, allowing development teams to add features and react quickly to market changes.

Traditionally, IT teams have used a “waterfall” approach to develop applications, with a discrete design, build, and run phases lasting a few months or more, culminating in a product release of the entire unit of software. In a cloud-native environment, development is continuous and cycle times are shorter.

Taking the pulse of the market

To understand how well the banking industry is embracing cloud-native opportunities, Capgemini commissioned a global survey in 2017. Survey results indicate that cloud-native is gaining noticeable traction in the banking industry, with 27% of executives saying that cloud native is already a “core part” of their overall cloud strategy. On average, banks spend around 27% of their cloud budget on PaaS, with bank executives saying they expect to devote 41% of their cloud budget on PaaS within the next three years.

In fact, many cloud-native leaders are already seeing significant results:

  • 88% of respondents said that cloud-native approaches had improved organizational agility
  • 84% said cloud-native had helped increase revenues and reduce operating costs.

Bank IT leaders are on board with the cloud revolution. They recognize the benefits of cloud have mitigated many security concerns and have begun moving core applications to the new environment. However, many banking applications running in the cloud today were built for an on-premises world. They have been migrated to a cloud environment, rather than being developed from the ground up to take advantage of cloud elasticity and scalability.

Genuinely cloud-native applications – applications developed and deployed as a set of flexible microservices using PaaS tools – can go much further to reduce costs, boost performance, and increase business velocity. So, are banks taking advantage?

But adoption isn’t always easy, and barriers stand in the way of transformation. More than 60% of respondents said that integrating cloud-native applications with legacy infrastructure posed a significant challenge, while 61% said organizations face a significant cultural challenge in the move to cloud native.

Uncorking creativity with open banking

It is evident that many banks are forging ahead with their cloud-native strategies. They have little choice, as noted in the 2017 World Retail Banking Report:

The future success of banks will require a shift toward an open-banking model. This can uncork the creativity of third parties, generating unprecedented opportunity for building and distributing innovative new products while offering customers transparency and a ubiquitous banking experience.

To overcome barriers and make the most of a cloud-native approach, banks must:

  • Transform DevOps in line with new cloud-native capabilities and development approaches. Cloud-native application development requires a team with strong knowledge of PaaS and cloud-native solutions. According to the survey, banks don’t have all the necessary skills today, with 68% of banking executives saying cloud native represents a skills challenge for their firm.
  • Select a platform or technology option that supports these goals.
  • Evaluate their existing applications and services portfolio to decide which should be lifted and shifted to the cloud, which should be rewritten for cloud, and which should be retired.
  • Ensure that the workforce and the culture are ready for the move to cloud native. In traditionally risk-averse industries such as banking, resistance to change is often to be expected. It was no surprise that 61% of survey respondents said cloud native represents a cultural challenge for their business.

Banks can maximize the benefits of cloud-native transformation three ways

  1. Manage compliance with current and impending regulations: Every country has its own banking industry regulations, such as GDPR, CRS, and PSD2. Cloud native requires engineering discipline and enforcement of standards. These characteristics mean that compliance with emerging standards can be built into new applications and services proactively, instead of as an afterthought.
  2. Focus on differentiated sales and marketing applications to deliver winning customer experiences: The supreme agility and flexibility of cloud-native applications are critical to the continuous innovation that helps banks differentiate their customer experiences. Banks should focus their cloud-native adoption plans around applications such as online banking, customer-facing websites or mobile apps, loyalty programs, digital marketing, or in-branch digitization. This is where cloud-native applications help to build a sustained competitive advantage in a world of nimble newcomers.
  3. Build insights from digital customer data for personalized digital engagement: The extreme elasticity and scalability of cloud native makes it ideal to run big data and analytics applications to manage the growing variety, velocity, and volume of data generated today. This will enable quick conversion of data into meaningful insights that fuel personalized digital engagement programs.

What does cloud-native success look like for banks?

  • A faster, more agile, and more flexible business capable of changing and rolling out new applications and services to meet new demands at speed
  • An infrastructure built to support the flexible experiences demanded by today’s digital customers
  • A simplified approach to complying with emerging regulations governing this industry
  • A platform for continual operational improvement and innovation
  • A more cost-effective base for all enterprise technology, free from the burdens of legacy monoliths
  • A faster, more collaborative, and more empowered development team with all the tools necessary to innovate with ease.

For more information about cloud native and banking, download our perspective paper, which includes survey details as well as pragmatic advice and best practice examples from banking cloud-native leaders.

Coming up…

Leading up to the September 18 launch of the World Retail Banking Report 2018, Capgemini will publish a variety of blogs that examine three central banking topics: Customer Experience and Business Models, Technology and Operations, and Product Management. Stay tuned for insights and practical advice about digital transformation and the new normal for retail banking. Or, learn more about Capgemini banking solutions by visiting:

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