Cloud computing in banking: All you need to know before moving to the cloud

According to a survey by O’Reilly, cloud adoption is rising across industries at a steady rate, with over 90% of organizations using cloud computing technology. The growth in adoption rate is evident from the last year survey that reported 88% organizations using the cloud across the globe. Now while industries have started relying on cloud services for their varied data and operational needs, there is one industry that is taking its sweet time to adopt the idea on a holistic level – Banking. 

With banks and financial institutions taking time to check every aspect of cloud from the security and privacy angle, cloud computing in banking is moving at an overly cautious speed.

However, if there is one thing that COVID-19 has taught us, it is the fact that consumers need services on their fingertips without visiting a brick and mortar shop – whether it is shopping for groceries online or managing their end-to-end banking needs. In light of this, banks, however slow they are in adopting IT cloud infrastructure and cloud computing virtualization, know that their 2030 version will be very different from what it looks now. And that they need to put strategies in place today to prepare for their future-self. 

We know that an important role in this transition will be played by cloud services for banks. Here’s how. 

Benefits of cloud computing for banks

With banks taking a cautious but steady move towards IT cloud infrastructure, it is important to highlight the benefits of cloud computing in the banking sector.

Better data security

With frequently updated software, cloud computing for banks proves to be a security-first approach for a bank’s operations. However, ensuring that the intent is met, it is very important to choose a cloud computing service that meets the following criteria:

• Compliance and certifications
• Performance and reliability
• Next-gen technology inclusion
• Migration support 
• 24*7 service support

Lowered infrastructure cost 

There are no fixed statistics, but the reliance of banks on on-premise systems remains a global phenomenon. Now, while through this reliance, they are able to safeguard users’ data, a big problem with it is the complex-level adaptability to organization-level changes. Any change in the IT infrastructure, workload management, etc. requires time – a time that leads to massive downtime on the customer’s ends. 

By adopting cloud consulting services for banks, the IT infrastructure changes become more manageable, while they are able to scale their offerings on an immediate basis. 

Greater operational efficiency

Cloud environment increases the efficiency of a banking institution by manifold. By hosting their services on cloud, banks can enjoy benefits like:

• Quality control
• Disaster recovery 
• Flexibility 
• Loss prevention
• Risk management 

By hosting banking portals on the cloud, the institutions are able to focus on bringing their fixed and variable expenses down with a guarantee of 99% uptime. 

Access to software applications 

Cloud computing in banking gives the institutions access to CRM and ERP software applications which are engineered to better their client relations and employee experience. Since these apps are a part of the SaaS model, the banks have complete control over them in terms of what data goes into them and scope of personalization.

Contributes towards business continuity

Through cloud computing, the banking firms get greater levels of fault tolerance, protection of data, and disaster recovery. Moreover, cloud computing provides a massive-level of redundancy and backup at low cost. The technology gives banking institutions every ingredient to make it future-proof. 

Since the cloud is on demand, the infrastructure investment gets minimized, which in turn lowers the set-up time. All of this lowers the development cycle for new products, leading to greater efficiency and expedited customer response.

Usage-based payment

For an institution as traditional as banking, the fear with technology is too deeply instilled. So, when it comes to adopting new technology, cloud gives them the freedom to adopt the service on a pay-as-you-go model.

Green IT

Transferring the banking services on cloud lowers the energy consumption and carbon footprint. It also leads to minimizing the idle time, which makes the utilization of computing power extremely efficient.

Now that we have looked into the glaring benefits of cloud computing for financial services, it is time to choose the best cloud services for banks. 

Choosing the best cloud computing model for financial services 

Cloud provides banks the choice to move from a capital intensive model to a flexible business approach that brings the operational cost down, while keeping data security the top priority. The key to a successful cloud development and integration process, however, lies in selecting the right cloud computing model. 

In the cloud for banking ecosystems, there are three primary types of cloud computing services that institutes make the selection from –

Cloud service models:

SaaS – The cloud type consists of business software and its related data, which the users can access through their web browsers. The business use cases that can be hosted on SaaS can include customer relationship management, invoicing, accounting, service desk management, and content management. 

PaaS – This cloud type is focused on providing a complete platform, for interface, apps, and database development, testing. It enables banks to streamline development, and lower the IT costs and the need for hardware, software.

IaaS – Instead of purchasing the software, data centers, and servers, this cloud model enables banks to use these resources on an outsourced model. 

[Also Read: IaaS vs. PaaS]

Cloud deployment models:

Private cloud – This cloud infrastructure type is operated for a specific bank. It is usually managed by the bank itself or a third party who works from the premises. Banks are usually recommended to host their services on a private cloud as it gives them higher control and increased flexibility. A private cloud also minimizes the risk of security breach as it is deployed within the firewall of the organization.  

Public cloud – This infrastructure is open for the entire banking industry to share and is owned by the organization which sells the cloud services. Banks can opt for public cloud if they are looking for economies of scale.

Hybrid cloud – This infrastructure is composed of both private and public clouds which operate for their individual business use case. 

Cloud operating models:

Virtual captives – Under this model, there is a dedicated pool of centers and resources to help banks with their cloud operations, available on demand.

Staff augmentation – In this model, the banks gain cloud expertise by hiring people with the right skillset. The team is housed internally and allows for greater flexibility when it comes to meeting the demands in real-time. 

Outsourcing vendors – This approach makes use of offshore facilities and people to manage the cloud operations. The people and facilities, under this model, usually cater to multiple banks. 

These were the different cloud models available for a banking institution. Now, we understand that choosing between them can be tough for first-time cloud strategy. Let us make it easy for you. Here are the cloud options that we generally work around when we digitally scale a BFSI brand. 

The cloud models Appinventiv trusts

For mobile payment processing: While large banks process their own debit and credit cards, we trust Visa, MasterCard and Stripe cloud solutions for our emerging BFSI clients. In addition to easy integration, they provide the financial institutions specialized expertise in security and fraud detection.

For customer relation management: A majority of banking institutions struggle with marketing. Very few banks know what their customers want or if their services are aligned with their customers’ needs. Some of the cloud providers that we trust for this purpose are Salesforce, Mailchimp, Zendesk, etc. They are all together fast emerging as cloud providers for CRM and sales. 

For core banking: While large-scaled financial institutes have their core banking system, it is not always the case with credit unions or small-sized banks. For them, it is best to choose a turnkey cloud banking service provider that offers features like online banking, teller lines, etc.
The cloud service providers we trust for this use case are Jack Henry & Associates, Trident, FSI, and Fiserv. 

For human resource management: A number of banks are considering cloud-based HRMs which offer software around payroll, talent management, etc. Popular choices for this use case can be SAP/SuccessFactors, Workforce Now, Darwinbox, PeopleStrong, and Oracle HCM. 

For IaaS: At the back of the growing costs of data centers, banks are choosing to move their app development and testing activities to the Infrastructure-as-a-Service model. The IaaS providers are known to provide timely software upgrades and cost-effective hardware, making it easy for banks to upgrade their digital offerings. Some of the platforms that we trust in the IaaS sector would be Amazon Web Services, Google Cloud Platform, Microsoft Azure, etc.

Now irrespective of what cloud model you end up choosing for your bank, there are some inherent challenges of cloud adoption in banking. Understanding what they are will not only help you choose the best model but will also help adopt cloud services more confidently. 

Challenges of cloud adoption in banks

There are a number of roadblocks that stand between banks and their cloud adoption initiatives. Let us look at some of the key challenges. 

Latency

The physical distance between a data center and the cloud service provider can affect performance by introducing latency issues. This latency can lead to a delay in core banking activities like card authorization.
In addition to the difference in geographical points, shifting the systems from the data center to cloud environment can also lead to extra latency. 

Data residency 

When data is hosted on the cloud, several issues of “data ownership” arise. Regulatory compliances add on to this issue as several financial institutions face government mandated limits on where they can store the data. 

Resilience 

Although the instances of outage are a lot less and widespread than the traditional IT environments, it happens. Now, unlike traditional IT outages, the impact of cloud outages are a lot more widespread as the banks face the probability of high-level data security breach and a downtime which is out of their control to manage in real-time. 

Embrace cloud technology with Appinventiv

Appinventiv has been helping the BFSI industry lower risks and increase benefits through the integration of the best suited cloud transformation strategies. We help banks approach cloud migration in a module-wise module, ensuring reduced transition risks, while giving them the space to witness the many advantages of cloud computing in a cost-efficient way. 

Our cloud-first approach enables transformation at scale and at speed, helping enterprises drive collaboration and agility. We can help you embrace the agile digital environment by getting you on the cloud. Reach out to our team of cloud experts today.

FAQs

Q. How does cloud banking work?

A. Cloud banking combines digital assets like data algorithms, capabilities, and software platforms specifically tailored for banking operations. Cloud services enable banks to rapidly build customized solutions on software applications and infrastructures that streamline banking operations. It allows the banks to manage their core banking systems providing exceptional banking and financial services to their clients.

Q. Why are banks and other financial institutions now moving to the cloud?

A. Moving to the cloud enables banks and other financial institutions to improvise the security, efficiency, and resilience of their IT services. Furthermore, the cloud also allows them to get their manual repetitive tasks done faster. Being a platform for experimentation, innovation, and business agility, cloud computing helps banks manage their core business operations efficiently.

Q. What are some of the key success factors for banks shifting to the cloud?

A. When considering cloud solutions for various financial services, banks should partner with the best cloud service provider that has experience in advising or helping large financial institutions with cloud computing solutions. Here are some of the key success factors that banks should consider while shifting to cloud solutions. 

• Clearly define the ROI for the cloud-based projects
• Choose service providers who have expertise in offering cloud-based services
• Sign those outsourcing contracts which utilize pay-per-use cloud delivery models
• Understand the regulatory compliances and data confidentially requirements

Q. Are there any risks involved for banks while migrating to cloud services?

A. Banks mainly operate with a low tolerance for regulatory and reputational risk. Among those banks that are still reluctant into shifting their code systems to the cloud, the biggest concerns would be the risk of disruption to the business, the need to comply with stringent data, security, and privacy rules, and the complexity of the changes in their financial operations and systems. 

These risks of migrating to the cloud can be easily managed by working with experienced cloud professionals who know how to mitigate risk for the banking systems.

Q. What type of skills are banks investing to drive success?

A. Clouds skills mainly include technical skills and proficiency in leveraging cloud technology for shaping better business outcomes. The first category is technical skills where the experts need to build, design, and maintain cloud computing systems. 

The second category is proficiency or the “technology quotient” which means the capability of the experts in utilizing cloud technology in the banking system. These include skills like digital fluency, cross-functional collaboration, cloud value optimization, customer-centricity, and data-driven leadership.

THE AUTHOR

Sudeep Srivastava

Co-Founder and Director