Banks have traditionally had an aversion to cloud computing, over security fears. While just about every other industry has made the transition, banks have been one of the last to adopt cloud technology. It’s now a position that’s becoming harder and harder to justify.
Regulators have given both guidance and a green light, and ironically, modern cloud platforms are now more secure than many banks themselves. They’ve had to be. For their own survival, cloud providers have had to strive to meet every security certification and standard out there, and they are typically more secure than a bank’s own data centre.
While some factions of the financial services industry have started the move to the cloud, overall it’s been a slow-moving progression, especially for banks. But three key drivers are stepping up the pace.
First, new industry catalysts are acting as an accelerant for cloud adoption, and some of them even strengthen a bank’s security defenses when used in a cloud context. Second, many banks have finally reached the conclusion that their cloud reticence is hindering much-needed growth from new products and revenue sources. And third, digital transformation, customer expectations, and disruptive competition have redefined the definition and demands of agility.
The biggest and hottest of these catalysts, is of course, blockchain—arguably one of the best technologies for the digital age. Blockchain’s inherent strengths have been designed to increase trust and virtually eliminate fraud. Based on algorithms, blockchain technology’s advanced encryption and validation form many independent parts, providing golden distributed ledgers, recorded provenance and data lineage, as well as numerous benefits for the financial supply chain. Together, blockchain and the cloud become a powerful, secure trusted platform.
Cybercrime—a constant threat for banks and once seen as a cloud inhibitor—has now also morphed into another catalyst for cloud adoption as banks seek greater security. That’s because core banking technology was originally based on paper and customers without mobile phones, a model that’s no longer applicable or tenable. As banking customers started to use computing, security was added selectively across the bank. Each bank has its own security measures, and with minimum collaboration across the industry, fraudsters took their scams from bank to bank. Today fraud has exploded, and banks are seeking a higher grade of shelter. A 2016 Office of National Statistics study estimates that the UK loses £193 billion per annum, with 6 million people experiencing cybercrime involving their bank account.
And of course, money is not the only criminal target. Data is just as valuable. From May 2018, new regulation means banks can be fined up to four percent of their global turnover for non-compliance around data protection. But with data often duplicated across numerous business silos, data capture and management is both difficult and complicated. (One bank has more than 100 systems doing virtually the same banking activity, but none of the systems are the same). In sharp contrast, cloud computing provides a single, secure, centralised, and consolidated data infrastructure.
Of course, no discussion of the cloud would be complete without mentioning the cost benefits. Today’s sophisticated cloud technology is designed with security and functionality built in. No more ad hoc, often-undocumented custom patches to fix logic in the banking processes. Regular business updates are standard and the community verifies them. Cloud has mobile computing and cybersecurity in place as part of its DNA.
If you’re still not yet convinced about the cloud, your customers are. They expect one continuous and congruent experience regardless of channel—ATM, mobile, online, or via a call centre. Again, this consistent, digital omnipresence across all the pieces of the digital banking jigsaw can never be achieved in silos. It’s an impossible task, and the regulators now have the Senior Manager Executive Regime rules, so failure is not an option.
The time has come for banks to digitise their processes, not simply so they can keep pace, but for their continued survival. The advent of blockchain, cybersecurity, data protection, digital agility, and cost reduction have (finally) snowballed to make a cloud-based infrastructure a business mandate for banking.