Cloud Computing and the Banking Industry – A leap of faith

Article by Nitin Mishra



The Cloud presents an opportunity for tremendous change in the way the business of banking is carried out in the modern day, however, concerns still remain. These concerns are largely related to security of information and data in the cloud and compliance. Banking organizations and the financial sector as a whole has been relatively slow in adopting the cloud. Their strategy has been to wait and watch on how the cloud performs both from a security as well as robustness of infrastructure point of view. While security concerns imply the fact that many banks have been slow or nearly reluctant to use public cloud services in core banking, public cloud can play a bigger role in a banks’ horizontal and back-office processes that does not directly involve sensitive data pertaining to customers.

What is driving the banks and other financial institutions to adopt the cloud is mainly the industry pressure to consolidate IT costs - in fact, Gartner has forecasted that, by 2016, poor return on equity will drive more than 60% of banks worldwide to process the majority of their transactions in the cloud. Taking cues from companies in other industry verticals having the same need for data security, deriving value from the cloud and outperforming competition at lesser costs, the banking and financial services sector is now looking at cloud in a whole new way.

The cloud provides agility and flexibility to deploy IT infrastructure unlike the fixed IT infrastructure assets and legacy systems that the banks are used to. With banks and other financial organizations evolving to handle the inflow of data, the data centers too have to become more nimble to manage the influx of data and the constant flow of information across diverse environments. Moreover, the cloud enables banks and financial institutions to transform their business processes and grow organically in new sectors and geographies without incurring huge costs for establishing a physical presence. It helps in creating new markets and services for the bank’s customers and gain a competitive edge. The cloud also helps in identifying and creating significant opportunities that helps banks to develop new business models that are customer-centric, thereby increasing growth and profitability. In the future, public cloud use could also potentially extend to activities such as credit card processing, check clearing, and analytics on aggregated data.

Cloud computing

Cloud computing can enable new business models for financial institutions that can fundamentally shift competitive landscapes

The cloud plays a key role in the bank’s efforts to transform its business and operating model. From a technical viewpoint, the cloud automatically assembles, integrates and configures technology resources to meet business goals. In business terms, it eliminates the need for a physical infrastructure to be present at each location from where the bank operates, thus making it easier for the bank to deploy services rapidly and at a lesser cost. Below is a table that encapsulates the benefits the cloud offers in different functional areas of a bank’s operations.

Area of Operation

Benefit(s)

 Analytics

Integrating customer data across banking platforms to enable near real-time insights

Business Services

Extending and incorporating third-party services to extend the banking ecosystem to support customer’s everyday buying and paying needs

Collaboration

Enabling employees across distributed branches to access trading and banking systems through a security-rich cloud infrastructure

Desktop and Devices

Deploying a private cloud to centralize management of desktops allows for greater remote flexibility without sacrificing control, while enabling banking employees to access the applications and data they need

Development and Testing

Enabling a bank’s development teams to quickly and easily create virtual environments thus increasing the agility of development and testing

Industry Applications

Enabling payment providers to standardize and modernize transaction processing

Infrastructure Compute

Allowing capacity to be allocated, expanded and reallocated efficiently gives banks flexibility and agility while resolving the issues of complexity and cost increases related to scaling up traditional network models to accommodate future growth

Infrastructure Storage

Providing scalable storage solutions to ensure that the real-time demands of today's trading and analytics processes are maintainable

Managed Backup

Backing up a bank’s critical business data to ensure that in the event of a disaster a bank can bounce back rapidly and easily

Security

Enforcing active security and endpoint management to ensure corporate governance and banking IT policies are maintained

Owing to its enhanced computing power and capacity, the cloud can store information and real time data about customer preferences that can help a bank in product and/or service customization. Using this stored information, the banks can personalize customer interactions and offer their customers a unique experience.

The cloud can also help banks to streamline operations. By aligning business, operations and technology, it enables banks to drive higher growth and profit margins and increase flexibility. The cloud also helps banks to scale up IT resources on-demand for expanding its business operations. Banks can, thus, respond to customer and market demands much faster and rapidly adjust processes, products and services to suit the changing needs. This creates an environment of innovation, competitive differentiation and also speeds up time to market.

Banks are offering Internet banking and moving the payment function to the cloud, simply because of the great promise of cost savings, efficiency and agility. By moving the payment function to cloud, banks can fend off the threat of disintermediation from telcos and other mobile payment service providers. Payments are a huge source of revenue for the banks and banks will not let it go off that easily. Moving payments to the cloud not only eases the pressures on the bank from the point of view of managing an entirely IT setup for this but also benefits their customers.

In future, Cloud technologies along with analytics, mobile technologies and big data will enable banks to unlock value from existing data and processes to address risk management and drive customer engagement. By leveraging on standard development processes, scalability and collaboration enabled by the cloud, the banks will be able to create new and innovative product and service offerings for their customers. The cloud architecture also offers flexibility in deployment models, thereby; enabling banks to become more agile and respond to market changes must faster and transform their businesses.

As far as security in the cloud is concerned, in many cases, the security mechanisms put in place by global cloud providers may actually be stronger than those in many banks’ internal systems. The future of banking in the cloud holds great promise. Already banks in emerging markets are using the cloud to reach the unbanked population by offering mobile and electronic banking services. No doubt, possibilities of expansion using the cloud are endless for banks today.