For generations, commercial banking was constricted by legacy systems, segmented databases, and the dominance of local branches.
No longer. Banking operations are increasingly expected to be seamlessly available at the press of a button. With recent pressures for remote working, customer-facing software, and heightened risk mitigation, the industry’s need for innovative solutions has become even more pressing.
Given this new landscape, banking today is moving increasingly to the cloud. Driven in part by advances in fintech and the booming development of new application programming interfaces (APIs), the industry is looking to adopt the agility, speed, and innovation more commonly found in the technology sector.
SOARING BENEFITS OF EMBRACING THE CLOUD
From account maintenance and loan applications to automated reporting and cash flow management, clients want banking relationships that are not just defined by basic services and brick-and-mortar branches, but by remote capabilities, integrated processes, and flexible systems.
The benefits are increasingly evident, such as enhanced customer satisfaction, faster product development, and more agile systems scalability. The move to the cloud can also introduce important capabilities to access and mine data more prolifically, as well as provide opportunities for significant cost reductions through automation. Globally, these advantages are expected to push revenue for the cloud computing industry up 50 percent to $364 billion in revenue from 2019 to 2022.
For us, the reality of this cloud-enabled agility was driven home in early 2020 with the introduction of the federally funded Paycheck Protection Program, which aimed to provide small businesses with critical funding at the onset of the Covid-19 pandemic. Installing a new loan application process into our systems, testing, adjusting, and launching the program was an enormous task. By working around the clock, we were able to get up and running in 36 hours—a feat that would’ve been unthinkable if we were not running on the cloud.
CHALLENGES OF MOVING TOO FAST
Migrating sensitive functions and data within a financial institution, however, is not a simple undertaking.
Ensuring operational security while upgrading legacy systems is a difficult—and frequently costly—endeavor. Internal systems installed independently over the years as well as concerns about protecting both customer and institutional data, have forced commercial banks to proceed more slowly and carefully than other technology-led industries.
Many in the industry have remained reluctant to rely heavily on the public cloud. Indeed, a 451 Research survey at the start of 2019 found that only 18 percent of financial institutions had broadly deployed cloud services. In such a highly regulated industry, transferring risk to a third party is always a concern, as data security issues surrounding transfer of information are paramount. Although a global repository for all customer data might be a bankers’ dream, regulators remain understandably concerned about the location of data and maintain tight restrictions regarding the residency of customer data and its cross-border transfer.
For reasons of both control and security, many institutions restrict the placement of data, applications, and other software programs to the bank’s private servers. By embedding their digital operations in an onsite, organization-specific cloud, banking companies can help ensure the strict security that is required to protect financial data and customer information while providing developers and product managers greater flexibility.
This approach can work well if the institution is well-funded and maintains a large IT department of developers and programmers—and can afford the flexibility needed for storage capacity.
CLOUD BANKING ALLIES WITH FINTECH
For other institutions, a move to a public or hybrid cloud platform—combining private and public cloud—provides a more robust solution. Although even the thought of placing your banking operations in a public cloud was taboo just a few years ago, providers today, such as Amazon, Google, Microsoft, or IBM, can often provide greater security, storage, and innovation through a white-label solution.
Few of the recent advances would be possible without the new flurry of fintech entrepreneurs. Customer relationship management, content management, and document management are among the processes that have been moved outside institutions’ legacy systems thanks to a surge of new companies helping unbundle traditional banking operations.
Rather than viewing these fintech upstarts as competitors, banks would be better served by accepting them as innovative colleagues that can effectively augment an institution’s internal resources.
For example, our commitment to economic and environmental sustainability recently led us to team up with the Swedish fintech company Doconomy, which has a solution that analyzes consumers’ transaction history to estimate the level of carbon footprint that each transaction creates. Its system uses measures based on merchant, their location, their merchant category code, and the value of transaction, among other things.
By accessing the company’s solution in the public cloud rather than developing it in-house, we were able to pioneer our “1% for the Planet” account and offer our customers a mechanism to understand their real-time impact on the world. Even as a large banking company with deep IT resources, this achievement would have been outside our current scope for purely internal development.
ACCELERATING TO THE FUTURE
For years, every banking company has recognized that customers—both consumer and commercial—increasingly rely on digital access to their financial products. With the recent pandemic, however, the acceleration of these efforts has been extraordinary.
Whether it was moving an array of digital transformation projects forward on our internal list or simply adopting the acceptance of DocuSign systemwide, remote access to files and processes meant business survival. Having the ability to innovate and launch new products without the expense, time, and risks associated with on-premises development has been key.
For the industry, the rapid development of cloud capabilities made it possible. There is no reason to believe it will slow anytime soon.
This article first appeared in Forbes.