Lower costs, improve speed to market, unleash innovation
The pre-internet infrastructure of many of today’s retail banks was designed to support a transaction-oriented business focus. It’s no surprise that this legacy infrastructure portfolio is not geared to adapt to a marketplace in which the bank’s customers expect an experience and products and services customized to their personal preferences. An experience that is omni-channel, contextual, and customized to their particular needs. To remain competitive and relevant to their customers, banks are now working to transform their legacy systems, streamline business processes, and secure their data.
The cost to maintain, deploy, and manage complex in-house data centers, servers, and systems keeps going up, so the cloud option is a cost-effective alternative for retail banks. In their drive to become agile, flexible, and integrate with emerging technologies and the FinTech ecosystems, banks are accelerating the migration toward cloud solutions. The advantages beside cost include access to on-demand processing capacity, an ever-expanding variety of tools, and cloud-native technologies to deploy continuous releases, AI, machine learning, and process automation. Cloud innovation is emerging as the fundamental platform to unleash new products and services, and drive customer engagement and advocacy.
Banks operate within a heavily regulated environment and handle sensitive data. Traditionally, they have relied on in-house systems to keep data secure within on-site data centers behind their own firewalls. However, with the entry of FinTech firms and challenger banks – whose business models revolve around new technologies and innovative cloud capability – are changing the dynamics.
Clearly, the move to the cloud is accelerating, with most banks initiating migration of infrastructure and applications. Bank of America has tapped into Microsoft’s cloud service platform Azure and is targeting 80% migration of technology workloads to virtual platforms over the coming years. With a focus on best practices and change management, HSBC went live last year with an Oracle-driven cloud deployment for services such as financials, procure-to-pay, expenses, and real-estate management. Many more banks will embrace this cloud journey.
Cloud adoption can provide benefits that far surpass on-premises models.
- Cloud solutions enable banks to significantly cut expenses by slashing infrastructure costs by a quarter, potentially saving banks up to US$15 billion by 2019.
- Many vendors are providing Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS) applications eliminate the need to manage hosting, maintaining, updating, and scaling service operations.
- Cloud adoption enables integration with emerging technologies, which empowers agility and flexibility to enhance products and services quickly.
Moreover, the cloud makes analysis of vast amounts of computation-intensive data possible – and fast and cost-effective – with the help of big data analytics and AI. Traditional retail banks had been somewhat cautious and limited cloud implementations to peripheral functions or non-core banking functions such as ERP, HR, and service desks versus core functions (consumer loans, payments, enterprise data) that link to the general ledger.
Cloud benefits and security
As cyber attacks became an ever-increasing dilemma, concern over cybersecurity challenged the broad adoption of the cloud. However, as shown in the illustration, the industry has begun to accept the cloud as security challenges are mitigated, and cloud suppliers beef up security standards, security certifications, and strict protocols to enable secure access.
Many banks are considering a hybrid cloud model through which critical banking applications and processes are migrated to private clouds with enhanced security features, and non-critical applications are migrated to a public cloud for cost efficiency and agility.