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Noted author GK Chesterton once wrote, “There are no rules of architecture for a castle in the clouds.” He penned those words nearly a century ago, but they still ring true when talking about today’s modern cloud technology and cloud computing.
These days many banks are looking to the cloud for answers – and rightly so. The current economic whirlwind will eventually subside, but cloud is clearly here to stay. Bank modernization and transformation leveraging cloud isn’t building a wistful “castle in the sky”, it’s become a strategic imperative.
Software development is a process, not an event; a journey not a destination, the metaphors are legion. In the tech industry, there’s always work to be done and opportunities to create. Cloud computing opens up a new frontier.
Once an early adopter of technology, the banking industry now lags behind other sectors. Unburdened by legacy technology and legacy thinking, tech giants and fintechs alike have redefined customer experience by becoming cloud native, data-driven and futuristic. Meanwhile, incumbent banks often struggle with monolithic technology stacks and outmoded methods. As we ponder life after COVID-19, uncertainty reigns supreme but the risk of doing nothing is easy to compute. Banks must digitalize or die.
Closing the Gap
While the global pandemic delivered an unprecedented shock to the global economy, it also accelerated many events that would have happened anyway. Inevitably, the gap between banks with advanced digital strategies and those without was widening before the crisis. This will accelerate.
But amid this pessimism new opportunities arise. Consumers of all ages have developed a strong appetite and aptitude for using digital banking services. Remarkably, during lockdown, more apps were downloaded from incumbent banks than from the digital newcomers. In the UK, between mid-March and mid-April, more than six million people downloaded their bank’s app for the first time. During the same period, on average, downloads of challenger bank apps dropped by more than 23% compared to February.*
Investment managers would probably explain this as a “flight to quality” that often prevails during a crisis. This is great news for incumbent banks, a manifestation that their brands are trusted and doing what they should. But there’s bad news too – this is likely to be a blip that diminishes fairly quickly. Banks have an opportunity, but they don’t have much time. What should they do?
Head to the Cloud
Building a digital bank is never easy, but it has never been easier. Banks need to respond quickly, moving straight to digital and embracing the cloud. After some initial reservations around cloud security and regulation, cloud is becoming mainstream throughout financial services. Regulators in global locations have warmed to its usage. Cloud-based companies like Amazon have hundreds of millions of customers safely online simultaneously.
Most banks already use the cloud for peripheral applications, like content management and customer relationship management. Migrating core banking to the cloud is inevitable, and frankly essential to reap the stellar benefits of modern technologies – artificial intelligence, machine learning, data analytics, etc. – all of which enable the FI to build a better, more dynamic and personalized customer experience.
While these technologies promise strategic advantages, cloud also offers the immediate business benefits of scalability, availability, capacity, remote access, reliability, security, resilience and disaster recovery capabilities. Importantly, cloud empowers a bank to tackle its cost base and bring an end to speculative investment in technology. Lumpy capital expenditure is replaced by smooth revenue expenditure as cloud elasticity aligns costs with business success.
With so much on offer why have banks taken so long to embrace cloud? Although many have good intentions, migrating to the cloud inevitably involves some big decisions and best practice methods that are still being refined.
Private, Public or Hybrid Cloud?
Much discussion around cloud tends to revolve around public vs. private vs. hybrid cloud. Public cloud has wide availability and name recognition, whereas private cloud often comes with a level of expertise in financial services and operating banks which is a differentiator that banks new and old will find compelling – especially those who will operate with a very thin operating model. Regardless, while many banks voice strong views on the advantages and perils of each, such arguments are somewhat of a distraction from the very purpose of cloud. Paul Maritz, former CEO of VMware, offers these wise words: “Cloud is about how you do computing, not where you do computing.” Likewise, just as software development is a journey rather than a destination, migration to the cloud is more about how things get done rather than the tasks themselves. Whether a bank chooses public, private or hybrid cloud is of secondary importance to the decision to transform and do things differently.
Cloud Native and Digital First
Although not synonymous, cloud and a digital-first strategy are inextricably linked. Applications that are not cloud native tend to be inherently clunky, inflexible and have limited potential. Conversely, cloud-native applications are normally designed to run in an infrastructure as a service (IaaS) environment, which is stateless and technology independent.
Cloud also enables the use of modern methods, such as DevOps and microservices. These are real game-changers that expedite development, provide freedom to innovate, and flexibility to accommodate change. While there may still be rules for building your metaphorical castle in the cloud, they are far more lenient and customer-friendly than anything that’s gone before. The time is now to architect a whole new future of banking.
* Download statistics sourced from Finbold.com
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Nick Green Director at Purple Patch Broking Ltd
22 August
Oleg Stefanet Chief Risk Officer at payabl.
20 August
Venkatesh P Co-Founder and Director at Maveric Systems
19 August
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