Can cloud computing turn around challenges facing the financial services industry?
Pubished 13th December 2019
Banks are facing a multitude of challenges: flat growth, tighter margins, decreased customer satisfaction and potential disruption from cloud-native FinTech alternatives. Cloud technology has the potential to turn some of these challenges into opportunities, although banks do recognize the benefits of moving to the cloud, 43% had only the most basic cloud strategy in late 2018.
Cloud computing spending is expected to grow 6x the rate of IT spending through 2020 and the banking industry will spend more than $20 billion on public cloud services this year. Cloud adoption can increase the speed of product development and innovation, leading to higher customer satisfaction and avoiding disruption by more agile FinTechs.
In contrast to traditional on-premise IT, the cloud offers a user-led approach where impact and value are more tangible and therefore more easily appreciated by customers. Banks can choose to quickly migrate their most compatible applications to the cloud, then analyse how the cloud can support innovation. Large traditional IT systems may require multiple types of talent and numerous services to fully integrate with the cloud.
Hiring executives who understand cloud concepts can bring new approaches and cultural change. At the centre of cloud adoption is talent, a massive reskilling or upskilling of the technology workforce is required.
When it comes to choosing a cloud provider there is no one-size-fits-all approach, therefore cloud providers are making it easier for an organization to use multiple services at once. According to 451 Research’s Black & White paper, 60% of financial services firms expect multi-cloud to be the architecture of their IT environments in the next two years.
The initial investment to move operations may be a small amount compared to the long term savings. Bank of America expects $1 billion to $1.5 billion in annual cost savings as they consolidate and digitize operations, closing and potentially selling their data centres.
Banks can no longer afford to maintain their own IT infrastructure and compete with agile Fintechs. Public cloud providers such as AWS, Microsoft and Google offer more cost-effective service models and develop applications/tools at a much faster rate than banks could ever do.
AI-based tools are making a positive impact on banks’ capabilities in many areas including risk management, fraud and marketing. These tools rely on large quantities of quality data, and as the technology matures cloud computing will become more inevitable and necessary.
Adopting a cloud-native approach is an existential imperative for FS institutions driven by the pace of customer expectations. The institutions with systems that have been built over decades are particularly vulnerable, it may have been their competitive edge in the past but cloud computing is a different kettle of fish.