If you look at major banks across the world today, you'll find that most banks have set up innovation arms that are now working at the frontier of digital technology's potential in banking. Five years ago, you'd have found only few banks with operations of this type.

This explosion in digital innovation reflects an acceptance by banks worldwide that they must make radical changes in order to respond to several forces which can't be ignored. The most obvious of these forces is regulatory and return on equity pressure, as the global blizzard of new rules and regulations continues in the wake of the global financial crisis. However, alongside advancing regulations, banks also face several other drivers for change in their operations. For example, new digitally-enabled entrants are challenging banks' traditional business models and disrupting the competitive landscape. Customer expectations and demands are rising rapidly, as millennials come to dominate the consumer population. And non-bank innovators like Uber and Airbnb are redefining people's experience of technology, creating pressure for banks' services to be as seamless, personalized and convenient. In the face of these disruptive forces, banks have no choice but to simplify and transform themselves using digital technology. These trends can be grouped together under the term 'digital transformation'. However, digital transformation in banking isn't new: in some areas it's been under way for over a decade.

What has changed in the past few years is its scope and speed, and the functional and geographical "hot-spots" where it's advancing the most quickly. In the early days of digital transformation, the core focus of banks' efforts was around delivering services via mobile handsets and tablets. However, banks are now looking beyond the digitization of customer experiences and taking an outside-in view of their entire business, looking end-to-end across their front, middle and back offices. And across all three, they want to streamline and standardize their business processes, simplify their technology landscape and leverage cloud and as-a-service solutions to create simplified and optimized digital processes that will enable them to stay competitive, agile and relevant.

This is where payments comes into the picture. Banks today are still saddled with multiple legacy payments engines for different payment types. Digital transformation of payments not only enables banks to consolidate and make their payments processes and offerings more efficient and effective, but also allows them to standardize their surrounding business processes. The same transformation is underway in banks' other areas like lending, deposits and cash management. In the past cloud-based solutions were restricted to non-mission-critical processes, whereas today, with advancements in encryption and security, banks are now exploring cloud-based standardized solutions for their mission critical processes in a hybrid cloud environment. Alongside this shift in scope, there's also a geographical perspective to the new wave of digital transformation in banking. Up until now, banks in some parts of the world have been markedly more advanced than in others—with Asia Pacific and Australasia ahead of Western Europe, and Canada ahead of the U.S. These gaps are now closing, as banks in more mature territories like the U.S. start to advance their digitization plans— as evidenced by a surge in request-for-proposals for digital

transformation projects. The message is clear: cloud and digital technologies will serve as the backbone of banks' digitization journey. And, as digital transformation gathers pace and scale, banks that fail to embrace the cloud opportunity today will find themselves at a serious competitive disadvantage tomorrow – and struggling to catch up with their cloud-powered competitors.