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 management 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 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.
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.
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.
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.
Source: cloud computing in banking
