Why and how banks should embrace the cloud

The powerplay between the banking and technology sectors is changing. While fintechs still operate at the fringe of banking, the big tech firms - such as Amazon and Google - are starting to look at services that have traditionally been the domain of banks.

Banks are under increasing pressure to cope with regulatory expectations that are evolving to address the new, non-financial risks rising to the fore.  This in turn means they are facing increasing on-demand and real-time reporting duties. However, with the data on regulatory, accounting and structural updates often locked and siloed in ?verticals? rather than shared ?horizontally? across teams and across banks? infrastructure, the manual processes involved to harness this data has led to increased workloads, lower test speeds, and higher costs.

A more holistic view of risk factors and timely diagnostics is needed to keep up with the evolving regulatory landscape. Across risk and finance, greater scalability and openness are needed in both technology adoption and design principles.

Banks, to their credit, haven't turned a blind eye to the power of digital when innovating products, improving customer experience or streamlining operations. However, while many of the quick wins can be seen in customer-facing functions, the digital revolution in the middle and back offices can be a longer process, even though the scope for improvement is significant.

The cloud is already proving itself as an effective way to enhance how banks handle data - being nimble, secure and scalable to a degree we have not seen previously. It also offers flexibility and efficiency in such tasks as data storage and data analytics. Ultimately these efficiency gains enable banks to reduce costs - boosted by the fact that banks only need pay for services they use. Because of this, testing new applications is far more cost effective when done via the cloud, rather than through existing IT infrastructure.

UK Finance and Parker Fitzgerald recognised in a recent joint report that the key benefits of the cloud are:

  • Agile innovation - removing what is often a dead weight of existing IT infrastructure, giving scope for true innovation that would not otherwise be possible.
  • Risk mapping and management - reducing risks associated with legacy technology - such as capacity, redundancy and resiliency concerns - cloud computing also enables banks to have tighter financial crime measures in place. Banks can potentially scan thousands of transactions per second, dramatically improving the ability to combat financial crime.
  • Costs - through reductions in initial capital spend on infrastructure and more efficient use of system capacity, and also through the lens of risk mitigation and innovation, there are potential cost benefits here due to improved business efficiency.

Given these, plus the steps banks have already taken, it is a matter of when banks will fully commit to the cloud, not if. In the meantime, firms will need to take a considered approach in their choice of infrastructure providers to minimise financial stability concerns from concentration.

Ultimately, as BigTech firms themselves have already stated, the harmonisation of technology standards and a greater coordination between the financial industry, its regulators, and the technology sector will also be required to ensure that every cloud has its silver lining.

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