Here’s why you should move your bank to the cloud

MOST businesses around us are moving to the cloud. Some, for the more efficient use of resources it makes possible, others for the flexibility it offers. However, it is clear that moving to the cloud has significant advantages.

To learn more about how the cloud impacts banks, Tech Wire Asia caught up with Gartner’s Financial Services Practice VP Pete Redshaw, ahead of The Gartner Symposium/IT Expo 2018.

“Cloud maturity at banks is increasing as the cloud becomes more commonplace,” said Redshaw.

“However, given the fluctuating attitudes of regulators toward cloud — sometimes more liberal, sometimes more draconian — there is still a general reluctance at banks to embrace public cloud or to apply cloud to many of their core systems,” he added.

The most popular areas for cloud adoption in banks, right now, are outside the core — client sales and services, data centers, IT development and testing, enterprise resource planning, and security and compliance.

Core areas for cloud adoption that are rising in popularity include corporate banking, payments, and analytics.

According to Redshaw, here are some of the key drivers that should help convince bankers to move more of their core functions to the cloud, quickly:

# 1 | Maturity-related drivers

As cloud maturity within a bank rises, the bank becomes more willing to apply cloud to core areas where bigger gains can be made (increased revenue, not just decreased costs).

So, IT staff can learn by doing a pilot on something purely internal and peripheral such as enterprise content management (ECM) — now declining relatively — and then transfer those skills to other, more critical areas.

# 2 | Legacy-related drivers

Some areas of corporate banking have become relative backwaters, technically speaking, and need urgent modernization.

Software as a Service (SaaS) can offer a quick route to application modernization, especially for the smaller, niche applications often used in this sector.

# 3 | Change-related drivers

Given the ever-increasing pace of change, few banks are both big enough and agile enough to do it all themselves.

Increasingly, they rely on partners in ecosystems outside their firewalls.

This has long been the case in payments, for example. It was further accelerated by the Payment Services Directive 2 (PSD2) in Europe, and this may be why payments is in the vanguard for cloud adoption at banks.

# 4 | Vendor-related drivers

If and when vendors stop offering on-premises as an option alongside SaaS, clients may be forced onto a SaaS-only model (or else they’ll have to find a new provider).

The benefits of moving to the cloud

Big banks have always been skeptical about the cost savings from cloud, although they become less so when they look at the total cost of ownership (TCO) including elements such as labor costs, not just compute costs.

Cloud has always had a stronger appeal for smaller banks that do not have big economies of scale or large internal resources.

This is especially true for financial institutions outside of retail banking such as hedge funds and investment manager.

The exception to this rule may be small retail banks such as credit unions in the U.S. and Sparkassen in Germany that have long outsourced their IT to bureaus and utilities. For them, it is the back-office provider that may be moving to the cloud rather than the bank itself.

Cost reduction as a driver reflects banks’ implicit recognition that in-house infrastructure can be more expensive versus cloud and that private cloud is more expensive versus public cloud. Other drivers include aspects such as speed and agility (time to market).

Gartner analyzed publicly announced IT initiatives and investments in the cloud at banks from February 2015 to March 2017 to allow CIOs to see the general IT investment trends in cloud computing and to compare their own technology funding initiatives against those of other banks.

Of the cloud-based deals, 92 percent were in developed markets while the emerging markets captured a mere 8 percent.

For emerging markets, there is a different driver — cloud adoption is chiefly driven by the need for innovation to achieve multiple objectives such as improving customer experience (CX) and automating processes.

A number of cloud deals also involved the core banking system (always in a private cloud), showing a growing interest in leveraging the cloud for mission-critical tasks, unlike in past years.

At the end of the day, moving to the cloud isn’t a risk. It’s a necessity. The sooner than banks understand that, the better it will be for their them and all their stakeholders.

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