Long reads

Leveraging cloud connectivity

This is an excerpt from Finextra’s report, 'The Future of Digital Banking in the UK 2022'.

When digital banks like Monzo and N26 experienced rapid growth with their neo banking propositions, the financial world was turned on its head. They challenged the traditional notion that banks needed rigid, monolithic infrastructures to prosper in the industry. What was at the centre of their success? Cloud-native connectivity.

The cloud is steadily becoming all empowering in banking and financial services. Elevated by the need for digital transformation, cloud infrastructure accounts for one-third of IT spending in banks. And this is only the start. Though some see the ‘cloud’ as a buzz word thrown around the industry, there are strategic ways banks can leverage its agility, speed, and scalability to ensure they aren’t quickly becoming outdated.

Through cloud computing developments powered by the likes of Amazon Web Services, Google Cloud and Microsoft Azure, SaaS providers such as Mambu have been helping to digitise end-to-end operations for banks. This not only allows them to build composable and customer-centric banking experiences, but also puts innovation closer to the forefront of the banking and finance industry.

As such, connectivity and cloud infrastructure are essential to the digital future that banks are striving towards. Without it, there is a growing risk to legacy infrastructures. Whether it’s the high costs incurred or the lack of adaptability to respond to market demands, outdated systems are putting banks in a tough spot. This comes from the often clunky and disjointed components built around banks' front and back-end services. One sure way to avoid a loss of relevance is to embed cloud technology directly into a bank’s operational core.

Cloud connectivity as a banking strategy

Because the cloud isn’t a concept understood by all, there is a likelihood that traditional businesses will retain systems that are static, high maintenance and cost inefficient. Thus, they will struggle to cope with shifts in consumer demand, ultimately creating uncertainty about their long term success.

Banks can reach new heights by leveraging the power of a cloud-native infrastructure. This enables cost efficiencies, improves speed and security, allowing for greater expansion capabilities. Transferring mass consumer data to the cloud significantly reduces a bank’s overhead as it removes the need for physical data centres. And when the average yearly costs of running a data centre spans from $10-25 million, it's safe to say this removes a significant burden from the shoulders of banks. It also saves time. Incumbent IT architectures often require hours to extract consumer data. Because the cloud operates on an ecosystem of APIs, banks are able to optimise both internal and external processes within a matter of seconds or minutes through realtime processing.

Another strategic benefit of the cloud is increased protection. The banking industry, one already characterised by heavy regulatory presence, is facing increased pressure to level up security systems. Those who don’t could face millions in fines. This is what happened with Capital One, who in 2019 suffered a data theft exposing personal information of millions of banking users. But after migrating to a cloud infrastructure serviced by Amazon Web Services, things have changed drastically. Capital One have since closed eight data centres and adapted to seasonal demands by renting servers as opposed to running them all year round.

This is just one example of how cloud-based infrastructure is leaving legacy systems in the dust. But what is the best way to implement this level of connectivity in banks?

Balance is key for future proofing bank infrastructure

Though the pandemic has accelerated the digitisation of customer interactions, personal services remain important in the financial world. But they will look different going forward.

Since COVID-19 began, 58% of customer engagements with companies worldwide are now digital. This means banks and other businesses have had to pivot and optimise their user experiences through new channels. Even before the pandemic, customer services had begun to change. Consider the inbranch services that have become automated through self-deposit machines for cheques or cash, or fully digital onboarding when opening a new banking account. It comes as no surprise that 4,911 banks and building societies have closed since 2005 in the UK alone. But this isn’t something to dwell on.

The introduction of digitally-optimised solutions allows the cloud to break down operational and data silos to deliver greater customer-centricity. Banks have the ability to be more agile than ever, with an analysis for any individual customer readily available. This allows banks to create personalised products and services that drive conversion, increase engagement, and build loyalty.

Cloud-oriented solutions also enable organisations to shorten the time required for product deployment. The cloud simplifies product testing which allows financial institutions to test new innovations in real-time and react to the market’s acceptance or rejection with speed.

Given that vast amounts of information is often easily accessible, one must ask where data is stored and how it impacts operations. Cloud services align front and back-office operations by streamlining, automating and connecting data points in a single location belonging to the service provider. This once again removes the bank's previously isolated operational systems that would impede back-office efficiency and speed.

Facilitating this shift in agility, convenience and efficiency are the fintechs of tomorrow.

Banks need fintechs to leverage cloud infrastructure

Banks with a legacy infrastructure have been facing a serious dilemma post pandemic - evolve or eventually become extinct. With companies embracing the principles of API-driven composability to introduce innovation, incumbents are taking note of neobanks and challengers thanks to their longterm threat.

Digital banks are becoming consumers' primary financial providers at the same rate that traditional banks are becoming secondary. This is something we are increasingly seeing amongst millennials as 73% would rather use a digital brand than a bank. In other words, banks need to digitise – and they need help.

Cloud-native and SaaS providers are able to support traditional banks as they migrate their existing architecture to a modern, agile arena. Take the concept of a digital spinoff, for example. This is something we’ve seen through the likes of ABN AMRO with their launch of a digital 'speedboat' , New10 and Bank Islam with the introduction of their customer retention platform, Bank Islam CDX. With the right technology partners to help power modernisation, big banks are now relying heavily on fintech providers — in fact, 94% of financial service companies said they are confident fintechs would help them grow their company revenue over the next two years.

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