Cloud Computing in Financial Services
Why choosing the right partner to support your businesses cloud transformation is critical.
Over the last 10 years, one of the most talked about topics in the technology space across all industries has been Cloud Computing. In fact, a quick google search of the term “cloud computing” yields almost 7 billion results in under 1 second. This may not be the best indicator of most popular IT topics, but I’d still say it’s pretty compelling.
So why has the topic of cloud computing dominated business boardrooms and strategy discussions? Well, there could probably be just as many reasons as the above search results. But the main ones, which are well documented and known, include lower operational costs, increased business efficiencies/agility, better customer experience, increased market share and ultimately improved financial metrics, whether it’s revenue, profits, return on investment or share price, etc. These are just some of the main business outcomes driving cloud adoption in various industries, but not the only ones.
How is Cloud Computing relevant to the Financial Services Industry?
To say banking is complex is an understatement. The sheer amount of work required to run a financial institution means that leveraging technology is a must, to not just be efficient but to basically operate. Core banking systems are usually responsible for maintaining immutable ledgers of several of transactions and accounts; availing, in today’s customer expectations, near real-time balances on demand; and providing a wide range of products and services to clients with unique needs and profiles. These would be daunting tasks for even the most powerful supercomputers of today, let alone the smartest human beings. If that’s not all, there are other activities that banks engage in. I’ve tried to list some of them below:
- Licensing & Regulation: Most banks are multinational in nature, meaning they license from, and need to comply with regulations in the markets they operate in.
- Risk & Compliance Management, especially in the areas of Fraud and Anti-Money Laundering (AML): When your core business is dealing with money, then this is not just a function, it’s a responsibility. Although technology, automation and artificial intelligence have improved these functions in recent years, in most financial institutions, Risk and Compliance are still some of the most human resourced departments in many banks.
- Provision of Products & Services: It is not practical to list all of them here but broadly speaking, these include Savings, Lending, Investment, Insurance, Payments, FX / Remittance, Treasury & Cash Management, etc.
- Marketing, Sales, Customer Experience and Loyalty Management: These are all critical functions for any service organization, and especially Financial Institutions, where, because of digital solutions, customer loyalty is no longer a guarantee.
To keep costs down, remain operationally efficient, and compete in today’s markets, all these activities require complex underlying computing technology infrastructure. Cloud Computing offers a fast, cost-effective and efficient way of accessing this technology in the form of infrastructure, platform or software as a service.
Specialist technology companies have also built complex technology platforms and software solutions to fulfil some or all of these functions and offer them as a service from the cloud. This frees up financial institutions to really focus on providing differentiated products and services and enhancing customer experience.
In many cases, financial institutions don’t consume these cloud-based services off the shelf. Instead, they tailor them to meet specific needs based on their target market, product and service offering, competitive strategy and capabilities.
If Cloud Computing is this great, why is it not widely adopted in the FSI space?
Today, new financial institutions and fintech can start out as cloud-native by leveraging a number of mature cloud technologies tailored for this industry. However, making the transition to cloud for legacy banks can be daunting, to say the least.
Many times older incumbent financial institutions are stuck with brick and motor branches with long-running lease agreements. Big banks or insurance companies may also be held back by legacy core-banking systems and platforms which are monolithic in nature and have complex interdependent integrations across channels, (branch, ATM, card, internet and mobile), services (savings, lending, insurance) and with ecosystem partners (payment providers, trading platforms, card processing companies, regulators, other banks and fintech, etc).
Moving away from these monolithic architectures that are difficult and expensive to run and maintain, to more modern modular architectures incorporating containers and micro-services, requires more than just time, investment and technical skill. It also requires a shift in leadership mindset, and in most instances, a radical change in organisation culture, design and even business model.
Upskilling and re-skilling staff who need to adopt to new systems, processes, ways of working and client engagement can be extremely challenging as well. However, this is critical in order to continuously improve on these new cloud technologies, exploit the opportunities that come with them to the fullest and stay relevant in increasingly competitive environments and digital customer demands.
So what next?
Choosing the right credible partner to support your cloud transformation is critical. It is clear that it’s not just about selecting the right cloud platform, but also ensuring a seamless migration and ongoing optimisation of your enterprise cloud architecture. It is about adopting new agile approaches to building products and services for clients, securing and managing data in the cloud to provide actionable business insights and continuously exceeding customer expectations. It is also about opening up new opportunities like Banking-as-a-Service and Open Banking to better tap into the digital platform and sharing economies that have defined the biggest global companies over the last two decades.
A credible partner should be able to advise on multiple cloud technologies, have experience in the financial services industry when it comes to compliance and regulation and has demonstrable expertise in exploiting vast amounts of data to improve processes and create new business opportunities. The right partner should be proficient in cloud security and software-defined networking technologies that are pertinent to cloud transformation and customer experience excellence. It is even more important that this cloud transformation partner is at the forefront of research and innovation in emerging technologies like 5G, Edge Computing, IoT, Blockchain and Big Data and Analytics, working with start-ups, academia, big-tech, regulators and other financial services industry experts to shape the future cloud computing.
- Co-authored by Deshan Govender and Kevin Odudoh.