The financial industry is at a turning point in its history as more users flock to digital banking, many of whom plan never to set foot in a brick-and-mortar branch again. A crop of digital-native alternatives has sprung up to satisfy this electronic demand, with FinTechs and challenger banks offering holistic financial products that could potentially replace traditional financial institutions (FIs) altogether for this customer base.
Legacy banks will have to pull out all the stops to keep customers from jumping ship, and cloud technology could be a critical tool in this process. This month, PYMNTS examines how cloud technology can help banks augment their digital transformations — as well as the challenges FIs face in its implementation.
The cloud offers a multitude of advantages to banks undergoing digital transformation, including enhanced data security, increased operational efficiency, improved access to software applications and increased flexibility for integrating new technologies. All these improvements are accomplished by migrating bank data to much more powerful systems in the cloud, which handily outstrip the capabilities of on-premises technology stacks.
Such improved capabilities can easily allow banks to reduce costs, introduce new value-added services and improve the end-user experience to encourage customer retention. One survey found that 44% of bank executives said the cloud’s biggest benefit on offer was the ability to automate processes, while 40% said it was the ability to develop new products and services.
Banks have various levels of cloud integration, depending on their available resources as well as their executives’ willingness to make the leap to the cloud. Twenty-eight percent of banks have more than 30% of their applications in the cloud, while 45% have between 11% and 30% in the cloud, and 27% are less than 10% cloud-based. More than one-third of banks surveyed said they had not maximized the business benefits of their cloud investments, however — likely because of the challenges cloud integration poses for the banking industry.
Cost is one of the primary concerns, as cloud migrations can be expensive, and the value-add in numerical terms might be less obvious for bank executives to grasp. Just 29% of banks in a recent survey said they met their expected outcomes of cloud implementation regarding speed and enablement, and only 35% said they captured the expected value of their cloud migrations.
Such disappointing outcomes often can be attributed to misalignment between banks and the IT firms they collaborate with to deliver their cloud solutions. Banks will need to ensure that they pick the right IT partners to bring about their cloud migrations. It is highly recommended that banks choose from the 78% of IT companies that have successfully completed a cloud transition themselves. Aligning goals between banks and their IT partners will be critical to the future of cloud technology in the banking industry.
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