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Four Simple Truths About Cloud Every Bank Must Accept

Although cloud has been around for years, financial services firms haven’t yet tapped into the technology’s full potential – largely due to old ways of thinking. A preoccupation with cost efficiency and infrastructure savings precludes the digital mindset needed to rethink banking and insurance in an open-platform world.

Businesses that use cloud as a mirror image of their on-premise systems through lift-and-shift are missing out on the entire point. Cloud is reshaping the whole industry. If they want to stay competitive, every financial institution will need to fundamentally reimagine itself in light of this reality. Today’s innovative products are based on the best available cloud-managed services. This massively accelerates digital transformation as banks can focus on delivering differentiated customer experiences using their core domain expertise.

We’re in the midst of a Fourth Industrial Revolution, characterized by unending automation and smart technology. With an understanding of this paradigm shift, financial services firms can accelerate and enhance virtually every part of their business. But they will need to accept four inescapable truths if they are to get the most out of cloud computing.

Author

Michael Walsh

Senior Writer, Global Content Strategy

1. The culture needs to change

Command-and-control leadership → Empowered cross-functional teams

Most major banks lack the right organizational culture to reap the benefits of modern technology and facilitate change. That’s a major reason why their multi-year cloud-adoption programs fall short.

Financial services firms operate in an environment that can hinder cloud optimization: strict controls, traditional processes, cautious decision makers, top-down leaders, harsh penalties and complicated legacy systems.

Rakesh Nagar, senior director of technology at Publicis Sapient, said organizations with similar spend and similar talent, but different organizational cultures, have vastly different cloud outcomes.

“You’re seeing that some banks are more successful than others because they're really able to build pretty much a different organizational structure within their own firm that’s basically leading the cloud initiative,” Nagar said. “If they work with a rigid structure, there is so much red tape and friction that they just can't move fast.”

A diverse, multi-functional federated workforce – in which authority is dispersed rather than hierarchical – empowers teams to act quickly and iterate concepts and solutions until they shine. A key benefit of cloud is making experimentation (and even small failures) safer and inexpensive.

“You cannot move at 100 miles per hour and question everything,” Nagar said. “All this boils down to is that traditionally people have been so careful that they will take weeks and months and still not be able to make the final decision. But here you're able to move fast and say, ‘Okay fine, we made a mistake, but we are able to learn and course correct quickly.’”
Rakesh Nagar, Senior Director Technology, Publicis Sapient

Nagar explained that meritocracy, transparency and trust are the core pillars of the high-performing teams where failing fast and failing early is celebrated.

“In such a psychologically safe team environment, the blameless postmortem translates failures into great learning opportunities,” he said. “At the heart of it is the mindset of embracing failure and designing for it by making specific architectural choices.”

He said the conversation shifts from “preventing failures” to “automatically detecting and swiftly recovering from failures.”

2. Cloud needs to enhance other technologies

Cloud as storage → Cloud as enabler

Banks need to look beyond cloud as just a distributed storage and compute method and see it as an engine for digital transformation. It enables rapidly building new capabilities with ready-to-use cloud services, integrated with rich ecosystems of software as a service (SaaS) providers.

Cloud technology is effectively a skeleton key that unlocks countless doors for financial firms. Cloud alone will not fast-track a bank to its digitally enabled future. But without cloud, it’s impossible.

Migrating operations to the cloud in a meaningful way – rather than in fits and starts – will maximize a host of benefits for financial institutions:

  • Agility for rapid and continuous innovation
  • Modern capabilities for better customer experiences
  • Faster speed to market for competitive edge
  • Automation for extreme efficiency
  • Ease of maintenance for savings (pay for what and when you use)
  • Transparency for regulatory compliance
  • Cryptographic protocols for security
  • Scalability for meeting customer demand
  • Improved business continuity

Anyone still skeptical of cloud should notice the virtuous cycle seen above. The various advantages of cloud computing undergird and accelerate each other.

“Cloud-based technologies are also enabling superior developer experiences through open-source tools, application program interface (API) integration, sandbox environments, developer portal, etc. It is unimaginable to attract, retain and grow the engineering talent without the cloud competency,” Nagar said.

3. Banks need to learn from new entrants

Compete solely with other banks → Compete with all digital leaders

It’s important for financial firms to keep an eye on the innovations of their traditional rivals. Nagar said some major banks have successfully organized world execution strategies around cloud – whether banking-as-a-service (BaaS), Customer Data Platforms (CDP), intraday liquidity and risk calculation, trade surveillance and other fraud issues or something else.

Banks should be aware, for instance, of Goldman Sachs’ cloud-native transaction banking platform – the first of its kind on the market. But they need to look beyond their industry as well.

Chirag Shah, senior vice president of North American fintech and innovation lead at Publicis Sapient, points out that financial firms also have a great deal to learn from digital challengers.

Banks are no longer just competing with each other for the consumer’s attention. And they have a lot to learn from successful startups – whether fintech or not.

“Some new purely tech players like PayPal become threats to older banks. They didn’t have a big balance sheet or lots of money, but they had innovative technology and most of it was actually built around the cloud itself,” Shah said.

Banks are correct to adopt CDPs and APIs in the cloud. But Shah and Nagar argue that banks cannot stop there. If the data still comes from on-premises data centers, the CDPs cannot scale. That’s just one unfortunate side effect of a half-hearted migration.

“We see technical design patterns for financial services that still have mainframes and run the core transaction processing. They still have data infrastructure from the ‘70s and ‘80s spread across lending and credit scores and decision-making and all that,” Shah said.

By looking to digital upstarts, banks can finally leave behind cumbersome legacy systems and learn how to do more with less.

4. Banks need to prepare for widespread cloud nativity

Innovate for today → Innovate for tomorrow

Banks cannot merely catch up to today’s levels of cloud adoption. They need to set their sights on cloud’s anticipated pervasiveness in the not-too-distant future – or face obsolescence.

The International Data Corporation (IDC), a leading provider of market intelligence for information technology, predicts that 90 percent of trade finance and treasury workloads will run through SaaS or platform as a service (PaaS) architecture by 2024.

IDC based this calculation on the ability of cloud deployments and cloud architectures to address the particular sensitivities of trade and treasury platforms. They expect financial firms to modernize their trade and treasury functions under mounting pressure from corporate clients for more sophisticated tools.

The Global Banking Benchmark Study, which gives firms a sense of their digital transformation levels compared with the rest of the industry, found that many banks understand just how central adaptive, cloud-based architecture is to digital advancement.

When asked to rank which traits were most critical to become a digitally innovative financial services company, banks placed cloud-based technologies in the top spot most often: 20 percent of respondents ranked it first, 36 percent ranked it first or second and just under half ranked it first, second or third.

Cloud-based technologies beat out customer services (14 percent), data availability (12 percent), marketing (10 percent), agile product development (10 percent), agile culture (9 percent), measurement and analytics (9 percent), governance/funding (8 percent) and distribution (8 percent).

“Why and how is no longer debatable. Everybody knows that they cannot compete in today’s competitive landscape if they don’t unlock the potential of cloud – before their competitors race ahead,” Nagar said.

Any banks that are open to changing their culture, using cloud as a technological enabler, learning from digital disruptors and preparing for cloud’s growing importance will stay relevant and competitive.

Cloud is indispensable for building the infrastructure required for success.

Chirag Shah
Chirag Shah
Chirag Shah, Senior Vice President of North American Fintech and Innovation Lead
Rakesh Nagar
Rakesh Nagar
Senior Director Technology

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