A modern customer is looking for a bank that provides personalized financial products and more human relationships. Financial institutions should be flexible to meet these and other clients’ requirements and stay competitive in a fast-changing world. Thus, cloud adoption has become a solution for transitioning from legacy technology.
We can safely say that the cloud is the future of the industry. This is a base for 21st-century financial services. Thanks to it, banks can transform their monolithic architectures. But cloud computing adoption is not a fast process, as it takes time to check every aspect from the security and privacy angle. As a result, it is moving slower than other sectors. In addition, some banks still need to rely on outdated technologies for basic business functions. Consequently, they have higher operating costs and an inability to adapt to market changes quickly.
And at the same time, those that move fast to reorganize their business using the cloud already got the flexibility and maneuverability necessary for the competition within the industry. So today is the time for every bank to choose whether it will grow, develop, and meet consumer expectations or lag in the financial sector.
Cloud banking connects data algorithms and software platforms specifically designed for business operations. Cloud services enable quick customized solutions based on software applications and infrastructures that optimize banking operations. In addition, it allows for managing banking systems and providing exceptional financial services to clients.
As we mentioned in one of the previous blocks, most banks are in no hurry to implement cloud technology in their business. Several risks, like possible breaches of sensitive data and their severe consequences, make bankers postpone their decision-making. However, cloud computing has much more benefits than any financial institution should know.
Speaking of data breaches, it should be emphasized that most occur on local systems. And this is not obvious for some companies. So, the unsafety of banks moving to the cloud is just a misconception from the past. Because technology prioritizes financial operations and data security, it offers a practical approach to ensuring critical systems’ safety regardless of the complexity of cybercrime.
Unlike on-premise systems, reliable cloud providers have the most up-to-date equipment and the latest software. In addition, they constantly inspect their products for security and vulnerabilities and provide necessary updates at the right time.
But what does “reliable cloud service providers” mean? Managing your financial data with new software requires all cloud security criteria to be thoughtfully considered. To be sure that you make the right decision, pay attention to the following standards of cloud providers:
Additionally, cloud security continues to develop, and it is expected to improve further with time.
The illusion of strong performance and steady reliability of on-premise solutions has been shattered. Cloud migration enables financial institutions to realize their efficiency goals and exceed customer expectations and market capabilities. It provides disaster recovery with built-in redundancies. The speed of business and raised challenges solving grows—even speed-to-market changes with off-the-shelf cloud services.
By hosting banking services on the cloud, companies receive flexibility, improved quality control, loss prevention, and risk management. In addition, banks finally get an opportunity to focus on cost reduction and the financial health of their IT infrastructure.
Customer demand was challenging banks even before the global pandemic. After 2020, expectations have reached a new level. And legacy infrastructure can’t provide the necessary personalization, and proactive engagement across all channels to retain Millennials and Generation Z. Customer experience can be very different with cloud-based banking.
Banks need instant data analytics to handle this unprecedented competition and generate granular, detailed customer insights. Financial organizations can understand individual customer behavior through analysis, which drives conversion, builds loyalty, and increases engagement. In addition, advanced analytics enable more customized experiences. For example, bank virtual tellers automatically provide relevant information to each client.
Talking about the cloud’s benefits, it is necessary to mention cut costs. Cloud migrations provide greater efficiency, bringing cost savings up to 65%. And by scaling the amount of space you need on the cloud platform, you only pay for what you use. Also, migrating all core functions can save money from on-premises mainframe expenses.
In addition to cost efficiency, there are a lot of other tangible benefits of cloud transformation:
The key to successful cloud migration is also in selecting a suitable model. There are three major types of cloud-based services to make the right choice. Let’s see in details each of them.
Platform as a service (PaaS). It provides an environment for developers and companies to create applications, develop databases, and test. This cloud type enables optimizing development, reducing IT costs, and the need for hardware and software.
Software as a service (SaaS). It comprises business software and related data available for users via web browsers. Customer relationship management, accounting, invoicing, service desk, and content management can be hosted on SaaS.
Business process as a service (BPaaS). It provides a higher level of assistance, unlike SaaS. This model delivers complete process management, including design, delivery, optimization, and transformation.
Infrastructure as a service (IaaS). This type of cloud computing service offers essential storage and networking resources on demand, on a pay-as-you-use basis. Due to this, financial institutions no longer need to buy software, servers, and data centers.
Private cloud. It is exclusively dedicated to a specific company and comprises computing services available only to selected users. This model of cloud banking is usually managed by a financial institution or a third party. The private cloud provides more control and increased flexibility, that’s why this cloud computing environment is highly recommended. And last but not least is the security risk minimization benefit.
Public cloud. Unlike the previous model, this cloud infrastructure is available to the entire banking industry. But it is owned by one organization that sells cloud services. Public cloud providers offer computing services, including applications, storage, and develop-and-deploy environments.
Hybrid cloud. This type is a combination of two infrastructures — private and public. It works according to individual business needs. And this model of banking cloud is widespread because almost no one relies entirely on the public cloud infrastructure today.
Staff increase. The bank’s in-house team is replenished by hiring people with the necessary skillset. Flexibility is the most significant advantage of this operating model, as it meets demands in real-time.
Virtual captives. This is a hybrid outsourcing model when third-party cloud vendors supply all the necessary technical infrastructure and resources but gives a bank complete control over the processes.
Outsourcing vendors. Offshore facilities and people to manage cloud operations are required to work under this approach. Outsourcing vendors usually provide services to multiple banks.
Cloud banking is not immune from outages. Although such issues are much less widespread than legacy systems, they still happen. And their effects are large-scale as banks face high-level data security breaches. Another consequence is downtime, which is out of banks’ control to manage in real-time.
Latency issues can result from the physical distance between a cloud service provider and a data center. It, in turn, can affect performance and lead to a delay in some core banking services, such as card authorization. Systems moving from the data center to the cloud can also lead to extra latency. But this risk can be managed by working with experts.
Organizations can face several issues of ownership after data move to the cloud. Regulatory compliance also arises as financial institutions can confront government-mandated limits on where they can store their data.
Banks can overcome all these risks by establishing security, governance, and compliance guardrails. It will help ensure cloud banking services’ stability, consistency, and security.
A positive result of migrating depends on many points. Commercial banks and credit unions must change many aspects, like teams, skills, and approaches to work. In the example of other financial institutions that are most successful in cloud banking, we see how they operate processes involving all lines of business. As a result, they achieve increased speed, agility, and lower costs by pooling talents and ensuring unity of actions.
Unfortunately, there is no universal approach. Most organizations balance different business models, technology needs, and market dynamics to achieve the right combination. Their cloud initiatives start by defining the business value. The second step is smart prioritization to get the maximum benefit as soon as possible. And success cloud banking requires a focus on strategic data architecture and governance to ensure the business can leverage data in the cloud appropriately.
Also, it is equally important to find the right security and risk partners, as they ensure ideally designed and prioritized migrations. The challenge before these specialists is to approve cloud architecture choices and identify the best candidates for core security automation.
Moreover, operating an IT estate is different in the cloud. And the traditional model, including purchasing and running physical hardware, won’t work here. Banks face continuous consumption, capacity, performance, and cost management. Completely different skill sets and new operational functions are required. So, banks have to invest in it to ensure success.
And continuing the topic of skillsets for banks to invest, let’s look at them in detail. There are two major categories. The first is technical skills to design, build, operate and maintain systems. It comprises various skills in cloud architecture, engineering, security, data management, and development.
The second category covers the cloud-powered bank’s entire organization. It includes cross-functional collaboration, digital fluency, data-driven leadership, cloud value optimization, customer-centricity, and innovation culture. Market leaders invest in both categories as they understand that cloud banking is a whole new operating model.
Cloud-based systems are the future of banking, and the journey has just started. Banks that delay a shift to the cloud won’t reach the requirements of a modern business, such as greater agility, flexibility, and openness to innovations. As a result, they miss opportunities and even risk their survival. Ultimately, all banks will have to embrace this new way of operating in the market.
But the adoption process can entail several challenges around cloud security and regulation. And financial institutions should choose service models that best match their requirements and standards. Also, success depends on in-house teamwork and smart prioritizing.
Anyway, the advantages of cloud banking services are undeniable. And cloud computing solutions are becoming increasingly common in the marketplace for traditional and non-traditional institutions. Moreover, the cloud enables banks to embrace the digital transformation necessary to remain competitive in the future.
