Despite the slow adoption of cloud computing by the banking and financial services industry with security and reliability being the major concerns, financial institutions are quickly resorting to cloud-based services to achieve increased agility and lowered total cost of ownership (TCO). According to IDC, worldwide revenue from public IT cloud services exceeded $21.5 billion in 2010 and is expected to reach $72.9 billion in 2015. There is an emerging trend in which financial institutions are embracing “cloud solutions” as not just a ‘me-too’ option, but as solutions that yield competitive advantage due to shorter cycles of time to market for products and services.
Over the years financial institutions typically have been consumers of cloud-based solutions across generic and non-core services like virtualization, datacenter consolidation, storage and disaster recovery. Many financial institutions are either planning or have implemented in-house private clouds for sensitive consumer data and are utilizing the public cloud for generic services. As cloud computing capabilities mature and become more reliable, multi-tenancy and hybrid cloud models will drive increased adoption of cloud-based solutions that are focused on core services and achieve cost efficiencies and scalability.
Below are a few ways in which cloud-based solutions are transforming the way financial institutions engage with their customers:
- On-Demand BI
BI solutions around data scrubbing, predictive modeling and analytics are gaining importance for banks as they fine-tune strategies to improve profitability while increasing revenues in a highly competitive market. The insights provided by analytical reports augment banks’ capability to invest in channels that offer greater potential of ROI and are flexible to market demands and customer behavior. The ability to have access to flexible computing capacity can obviate the need to plan, procure, configure and deploy IT systems with associated costs, lead-times and financial risks. As a result, financial institutions will recognize significant benefits through lower operational costs, increased flexibility and deployment capabilities, thereby realizing improved time-to-market.
- Core Banking – SaaS
Core banking solution (CBS) typically provided banks with lower cost of operations while yielding significant efficiencies. Microfinance institutions usually have a customer base with large volumes of transactions that are of low value. Implementing CBS for these institutions, on one hand will help in reduced cost of operations and make it an economically viable operating model and on the other ability to reach out to larger rural population. Temenos’ T24 Core banking system, now available on Windows Azure development platform (Software-as-a-Service), has enabled microfinance institutions in Mexico to reduce costs by adopting a pay-as-you-go pricing model. This allows them to do away with the deployment and maintenance of hardware and software associated with traditional solutions.
- Accelerating Financial Inclusion
Smaller banks, typically with limited budget and resources, have been unable to serve their customers in a cost effective manner due to prohibitive costs of operations. Shamrao Vithal Co-operative Bank (SVC) has helped to remedy this by building a Federated Cloud which is helping these smaller banks to consume shared resources including hardware, software and banking software., The infrastructure for each bank is kept in a separate work area with appropriate security controls to maintain confidentiality and integrity of each bank. The resulting lower TCO for the banks will help them extend financial services like no-frills savings account and insurance products to under-banked population and other sectors, particularly in the emerging markets.
- Enabling Enterprise Mobility
To remain competitive, financial institutions have to deploy innovative technologies and support multiple channels of distribution to engage their customers. Ability to access data and information anywhere and anytime will empower employees of financial institutions to respond faster to the customers’ needs. By moving the internal apps to a public cloud managed by Google apps, BBVA, one of Spain’s largest banks, responded to the growing mobility needs of the bank’s workforce while reaping the benefits of cost savings. This was possible because of lower upfront IT CAPEX investments, increased efficiencies linked to scalability of cloud deployments and reduced risks linked to IT deployments by transferring (in part) to cloud service providers.
Cloud computing, a disruptive innovation, can play a transformational role in enabling financial institution to serve and engage with their customers at lower costs and higher operational efficiencies. Additionally, cloud computing technologies can allow companies to respond faster than the competition with quicker time-to-market.