Why almost 4,000 Chinese banks are struggling to migrate to the cloud
CHINESE banks are struggling, not just with staying afloat but also with their technology infrastructure.
A recent report by the People’s Bank of China (PBOC) reviewing the risks inherent in the country’s US$45 trillion financial system revealed that about one in 10 of China’s 4,000 banks received a fail rating.
In fact, a total of 425 rural financial institutions were deemed extremely risky and are expected to face sanctions limiting them from doing new business, re-lending, or receiving support from the authorities.
However, a big risk that the PBOC didn’t evaluate is the risk of falling behind in terms of technology — and Chinese banks are finding it tougher to meet the digital demands of customers.
At the 2019 Asian Financial Services Congress, IDC Research Director Yu Zhen told Tech Wire Asia that banks around the world, including in China, are still struggling to move to the cloud.
“I think moving to the cloud is beneficial for the banks. The shift away from old legacy systems to digital platforms for operational efficiency is important for banks, especially because it helps reduce costs.”
Reducing costs and improving operational efficiency, of course, are key for banks in China at a time when they’re struggling with margins, financial stability, and efficiency.
Zhen, however, is careful to explain that not all banks in China are struggling. The biggest state-owned banks have definitely had no trouble moving to a sophisticated hybrid-cloud model.
Those banks have set up a strong private cloud that protects sensitive data, while ancillary products and services are run on public cloud infrastructure provided by local vendors.
Mid-sized banks in the country follow in the footsteps of the larger banks and choose a hybrid model that lets them innovate and explore digital products and solutions for their customers while also protecting their data.
Since regulations in China prohibit banks from using cloud service providers such as AWS and Google and suggest working with local cloud providers, finding the variety and flexibility needed in terms of cloud solutions and the agility to develop future-proof platforms on these clouds is a challenge.
And while mid-sized banks can work around the restrictions, it’s the smaller banks the face the biggest challenge.
The small banks, Zheng says, expect to find a provider they can move everything to. They seldom have the resources to manage such a move to the cloud, so they prefer to hand over the job to a provider who can not only help migrate to a more digital infrastructure but also provide new and innovative services to their customers.
For all these banks, mid- and small-sized, moving to the cloud is still a struggle, and China’s regulatory restrictions aren’t helpful.
However, Zheng reminds banks often that moving to the cloud isn’t a choice, and no matter how hard, they’ll have to find a way.
“The cloud is fundamental to building a digital ecosystem. You’ll have to go to the cloud first before you even think of using other emerging technologies such as big data and machine learning.”
While China’s banks struggle to move to the cloud, the reality is, banks in other parts of the world are struggling too. For many, it’s a matter of priority.
Zheng’s advice is for banks to avoid delaying the move, because the more they delay, the more they risk losing their customers to rivals.