In March 2017, the Cloud Industry Forum reported that the UK’s overall cloud adoption rate had reached a record high of 88%, an increase of 5% from 2016.
This may have surprised the financial services industry, which has traditionally been hesitant to adopt the cloud due to outdated security concerns.
At Payment Cloud Technologies (PCT), we believe that this attitude is no longer an option in today’s digital world: the cloud is central to digital innovation, and financial services is perceived as one of the most dynamic and innovative industries around.
In fact, new data from YouGov recently revealed that 23% of UK adults see the banking industry as leading the way in digital innovation.
Slow-moving financial institutions that fail to meet these expectations may find that they lose business to better-equipped competitors that are already satisfying the needs of today’s digitally-savvy customers.
And, with 67% of users expecting to upscale their usage of cloud services within the next 12 months, those that fail to keep pace will miss out on 5 key business benefits as a result:
Cut Costs
For years, the building, developing and operating of a bank has been expensive. New datacentres and servers had to be constructed, and staff recruited and trained to operate them.
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Unfortunately, these costs have deterred potential new market entrants from providing much-needed competition to the monopoly of the traditional high-street banks.
But cloud computing means banks do not have to invest heavily in dedicated hardware and software with a limited shelf life, nor the manpower to maintain it.
Instead, financial institutions can buy into the infrastructure of a secure, dedicated cloud service provider and focus on driving more money into their business.
For example, ME Bank is a Melbourne-based retail bank with 800 employees managing $20 billion in assets and 280,000 customers nationwide.
As a digital bank, it wanted to transition from its incumbent on-premises datacentre infrastructure to a more efficient system, and reduce operating costs in the process.
After migrating its development and testing environments to the cloud, ME Bank reduced the cost of delivering development and test environments for new services and applications by 75%.
Improve Flexibility and Scalability
The cloud gives banks the ability to rapidly scale processing capability up and down according to ever-changing market developments and customer demands on a global scale.
In today’s fast-paced world, with customer-centric digital banks garnering significant market share, the ability to act swiftly is critical to remaining competitive.
Working with the cloud is a highly effective way to achieve this scalability at pace: 65% of organisations noted scalability as their top reason for initially adopting cloud services, and several financial services organisations have already realised this benefit:
For example, Auka is a Norwegian mobile payments startup that allows users to send and receive money instantly, pay bills, view transactions, and obtain instant credit.
Delegating the business’s server-side infrastructure to the cloud helped Auka to deliver impressive scaling capabilities.
Daniel Döderlein, Founder and CEO, Auka, said: ‘’With App Engine, we can go from ten transactions a second to thousands a second without a hiccup. Expanding across borders into new markets becomes vastly more tractable. It scales beautifully.”
Increase Efficiency
The cloud can help financial services organisations to streamline their operations to enjoy improved efficiency ratios and operating leverage.
This is particularly important for businesses that are operating across multiple markets with numerous target demographics, and must optimise all aspects of their organisation to retain a high level of efficiency.
Key to this process is the ability to interpret and analyse rich market data. Financial services organisations that action this effectively gain an advantage over their competitors by seamlessly negotiating new innovations and developments from that particular market.
For example, PCT’s cloud-based digital.VISION middleware was developed to keep pace with industry changes, in order to apply the most robust and relevant technologies to businesses depending on their objectives.
Further, FIS, a global leader in financial services technology and a strategic partner of PCT, runs US market analysis using the cloud. FIS’ Market Reconstruction Platform can collect and process data, and produce feedback reports within a few hours, with the ability to adjust to fluctuating market activity and support complex analytics.
Serve Customers Faster
Cloud computing makes new products and services easier to develop and launch, which is particularly important for a financial services industry that has traditionally been slow to respond to evolving customer requirements.
Even at the prototype stage, non-cloud based applications can necessitate more than 1.5 years of development before they are ready to progress to market.
With PSD2, Open Banking and other initiatives all underway or on the horizon, and ushering in a new wave of customer-centric, fast-moving digital banking, the cloud’s ability to deploy new features in less than 3 months will be crucial to both challenger banks and established institutions as they strive to stay relevant.
Unisys, a global information technology company, recently worked with PCT to leverage the Microsoft Azure cloud as a key component of Elevate by Unisys, an omnichannel digital banking platform that enables startups and established financial institutions to deliver secure banking services anytime, anywhere.
Crucially, digital.VISION’s agile cloud-native technology allows Elevate’s users to keep pace with the digital banking age by securely enabling quick-to-market current accounts, at a fraction of the time usually associated with delivering new banking features.
Forge Stronger Customer Relationships
The cloud’s combination of big data and potentially unlimited computing power allows banks to secure better insight into their clients than ever before.
Financial services organisations that ignore this unprecedented opportunity to develop systems that are highly customised to their customers’ expectations will pay the price by losing crucial demographics.
For example, 52% of UK SMEs say banks are not business friendly, while 44% of millennials in the US do not feel that their bank understands them. In an increasingly competitive market, it is unlikely that banks will survive without understanding these groups and servicing them accordingly.
When ING Direct changed its name to Tangerine in 2013, it adopted an entirely new business model to ensure that it could access customer feedback more easily, and deliver services based on that feedback effectively.
The bank achieved this by using Microsoft’s Analytics Platform System (APS) and Azure HDInsight. After transitioning 45 business intelligence (BI) end users to a Microsoft BI environment, Tangerine was able to convert customer data into tangible insights faster and more easily than was previously possible.
This deep understanding of Tangerine’s customers has allowed it to deliver the incentives and services required to retain and grow its customer base.
Further, using the Microsoft cloud, Tangerine has been able to adjust new product rollouts based on customer reactions in real-time, keeping the bank one step ahead of its competitors.
Conclusion
As Bloomberg reported last year, a minimum of 25 of the world’s 38 largest financial organisations and insurance businesses have begun to work with Microsoft to start putting applications onto the cloud.
As the cloud adoption rate continues to grow, financial services organisations big and small must ensure that they do not disappear into obscurity by failing to keep pace with this key trend.
PCT believes in the power of the cloud for business and consumer alike, and we have already helped many financial institutions to secure swift market entry using the cloud.
As the industry progresses further and further into full digitisation, the benefits of the cloud will be too important to ignore. This makes it crucial for businesses to act now in order to cope with an unpredictable and constantly changing financial services landscape.
Ian Clowes is the Co-Founder and CEO of Payment Cloud Technologies (PCT). As former Director of Abbey National Bank (now Santander) and Unisys, Ian has over 20 years’ leadership experience in the payments industry, including previous board-level appointments at BACS and APACS, amongst others.
Ian is currently a Non-Executive Director of charity banking company Change Account Ltd and airline payments experts Travel Welfare Ltd. He is also an Advisory Board Member of the Emerging Payments Association, the UK’s leading trade body advancing payments innovation.