Today, the main concern for most of the banking CIOs is the security and integrity of their data. Banking, after all, is a business of trust, and losing the trust of customers would be catastrophic. Also, financial regulators do not take any breach lightly as the repercussions can be swift and painful. Therefore, it comes as no surprise that financial services have been one of the slowest adopters of cloud computing, as on-premise infrastructure has classically been seen as more secure than on-cloud.

Consumer expectations, on the other hand, have changed dramatically. Mobile phones have become life’s remote control. Touch one app, and a car is at your doorstep; touch another, and the latest gadget is delivered straight to your home. Furthermore, video chatting is no longer esoteric. Consumers want to handle their financial services needs directly on their cell phones. Many of these functions are better enabled through the flexibility of the cloud. And regulatory bodies have themselves adopted the cloud. The U.S. Financial Industry Regulatory Authority (FIRA), for example, runs 90% of its critical applications in the cloud. Cloud vendors have always been cognizant of the importance of security and have built it into their architecture from day one. Together, these trends are bolstering banks’ confidence in cloud computing.

In today’s digital world, customers open bank accounts by uploading selfies, ask bank staff mortgage-related questions through video chat, and e-sign their home loans. While this was unthinkable a decade ago, customers today increasingly interact with banks, regardless of their location, via smartphones and digital technology.

Banks are finally transforming to meet customer expectations. But customers are habituating to the convenience offered by other enterprises in every other aspect of their lives, and CIOs in financial institutions are struggling to keep pace with growing customer expectations in a digital world. Compared to other industries, banks face more obstacles to implementing these changes. Financial institutions are oriented to tight security controls, and grapple with cost and regulatory pressures.

These businesses are required to rapidly ramp up and scale down to keep pace with changes in the outside world. To succeed, banking and financial services organizations must create agile enterprises, and to do that, they need to switch to the cloud. When the World Bank moved to the cloud, the organization’s 30,000 staff in 186 countries could access their data on a single platform from anywhere in the world. For the World Bank, which operates from some of the most troubled regions across the globe, this transition conversely enabled the organization to guarantee data security. Similarly, the NASDAQ Stock Exchange found a scalable and cost-effective solution when it used cloud storage for several terabytes of NYSE, stock market, and Amex data—a move that helped control costs and analyze trading data at scale.

Clearly, financial services organizations are beginning to experience the transformational impact of moving away from data centers and shrinking the core. But organizations that succeed are led by the right cloud strategy. At Mphasis, we know that this is only possible by harnessing the power of cloud and service transformation to create hyper-personalized customer experiences. 

Securing Data In The Journey To The Cloud

However, despite the new mobility of banks and customers, financial services firms have been reluctant to embrace the cloud in its entirety. Even as banking CIOs slowly shed their inhibitions about moving their applications to the cloud, most financial organizations have been slower to transition their core data centers.

There are several reasons for this reluctance. The primary reason, as in other industries, is the initial challenge of migrating the data to the cloud. As per a recent Frost & Sullivan user survey, as many as 57 percent of IT decision makers cited data migration as their chief constraint.

Even when organizations have successfully overcome this hurdle, data security and regulatory scrutiny remain their top concerns. This reflects the broader industry trend, where as many as 61 percent of IT decision makers in a recent Frost & Sullivan survey stated that the inability to meet compliance requirements was the reason they did not choose cloud Infrastructure as a Service (IaaS). New stringent data protection regulations—with the EU General Data Protection Regulation (GDPR) authorized to impose fines of two to four percent of the noncompliant company’s global annual turnover—are apt to increase anxiety over data security through all stages of the migration process.

Change Is Slow, But Change Is Here

While this has been the picture until recently, the good news is that it is changing. The seamlessness enabled by cloud, coupled with the technical ease and myriad solutions offered by cloud providers, is contributing to the change. The initial adopters among financial organizations were smaller ones such as credit unions, but today, large financial institutions and insurance companies—some say Wall Street itself—are moving to the cloud.

In fact, IDC Financial Insights calculates that the adoption of cloud would enable the largest global banks to reduce costs incurred on technology infrastructure, thereby saving $15 billion by 2019. Capital One, Goldman Sachs, ANZ Bank have all begun making use of shared cloud services. JP Morgan Chase, for instance, has turned to cloud services for irregular workloads that occur infrequently, such as card transactions around Black Friday.

Cloud providers are now facing security and business continuity concerns head-on by offering innovative solutions. For instance, new tools that automate traditional manual processes are being deployed, helping organizations successfully migrate to the cloud without business disruption.

Against this landscape, the future model for the cloud could be hybrid, where providers integrate their Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) offerings. Gartner estimated that IaaS would continue with its high double-digit growth rate into 2020. And while it will remain the second-largest cloud segment after cloud application as a service, IaaS is projected to become increasingly mainstream. One of the chief advantages of IaaS is the scalability and flexibility it brings to IT. Merril Lynch has employed an IaaS strategy to create and address its risk analysis programs. On the other hand, making use of a PaaS-led service is Morgan Stanley, whose analytics-backed strategy is getting a boost with the use of cloud services. Further, the added advantage of cloud-enabled mobility is leading financial services firms to develop smartphone interfaces to access and work with reports, account management, performance summaries, and more while on the go, all backed by cloud technology.

Even as the future model for the cloud continues to evolve, the transformation that changed the customer-facing functions within banks is now embracing data, too. This opens exciting new possibilities for the ways in which banks can use and analyze customer information. Data will no longer be considered to be in silos but in one continuous stream, opening new avenues for banks to further customize their services and exceed customer expectations.

In this new world, the future of banking is here. And cloud is driving this revolution, enabling organizations to stay ahead.

References:

http://fortune.com/2017/03/17/us-banks-shared-cloud-services/

https://www.cio.com/article/3068517/why-banks-are-finally-cashing-in-on-the-public-cloud.html

https://www.v3.co.uk/v3-uk/news/2427927/world-bank-turns-to-box-and-office-365-in-cloud-first-push

https://www.datacenterknowledge.com/archives/2009/01/07/nasdaq-using-amazon-for-cloud-storage

https://www.oliverwyman.com/our-expertise/insights/2017/sep/why-wall-street-is-moving-to-the-cloud.html

http://fortune.com/2017/03/17/us-banks-shared-cloud-services/

https://www.gartner.com/en/newsroom/press-releases/2017-02-22-gartner-says-worldwide-public-cloud-services-market-to-grow-18-percent-in-2017

This point of view article originally published on AmericanBanker.com has been shared by Srikumar Ramanathan, Senior Vice President & Global Head, Mphasis. American Banker is the essential resource for senior executives in banking and financial services, keeping its users updated on vital developments and focusing sharply on their most important concerns — innovation, transformation, and disruption; technology, regulation, and reform. Financial industry professionals turn to American Banker, every day and throughout the day, to stay maximally informed — drilling down on complex issues, keeping up with breaking news, and downloading research and data.