Has The Age Of Cloud-Based Banking Arrived?

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    Cloud-Based Banking
    Has The Age Of Cloud-Based Banking Arrived?

    The onslaught of announcements of banks partnering with cloud providers has certainly accelerated over the past 12-18 months.

    It started to pick up pace last year, when several large banks including Deutsche Bank, Goldman Sachs, HSBC and Wells Fargo announced strategic deals with the likes of Amazon Web Services (AWS), Microsoft Azure and Google Cloud.

    This trend has continued throughout 2021, with recent announcements including BNY Mellon’s decision to move wire payments onto Azure, CaixaBank’s new agreement with IBM Cloud for Financial Services and BMO Financial Group’s selection of AWS as a strategic cloud provider. Even smaller institutions are now tapping the cloud; for example, Scottish Building Society announced in November that it is running its strategic core systems on AWS.

    This trend may partly be due to the fact that the big cloud providers have all launched purpose-built environments for financial services, tailored to the industry’s need for security and resilience. Partly, it might be down to the regulators’ thawing approach to cloud over recent years. But mostly the trend reflects the sector’s pressing need for an architecture that can deliver business agility, innovation opportunities and, importantly, cost reduction.

    Has The Age Of Cloud-Based Banking Arrived?

    In a new survey of IT executives in the banking sector, conducted by the Economist Intelligence Unit and supported by Temenos, around three-quarters (72%) of respondents believe that incorporating the cloud into their organisation’s products and services will help them to achieve their business priorities. Just under half (47%) say that it will do so “to a great extent”, according to the report, ‘Capturing value in the cloud’.

    Interestingly, the region that was the most bullish on cloud’s potential to deliver for the business was Latin America – 82% believe that it will have some or a great impact, compared to 67% in Europe and in Asia-Pacific. This may be indicative of the changing regulatory and/or competitive environment across the region, especially with regards to Brazil and Mexico.

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    According to the survey, cost reduction is the biggest driver of cloud adoption (42%), followed by the adoption of artificial intelligence (34%) and business agility (25%). Only 15% chose elasticity and scalability as the top driver.

    Around four in five banking IT executives say they have a clear strategy for adopting cloud technology. Yet security, privacy, compliance and governance concerns continue to stand in the way of a wholehearted embrace of the cloud, according to the report.

    Security and privacy of data stored by third-party providers was selected by almost 60% of respondents as the greatest risk associated with cloud adoption, while 44% were worried about the uncertainty surrounding how cloud infrastructure is/will be regulated and governed in future.

    As banks increase their dependency on cloud providers, regulators are once again raising concerns around concentration risk and the potential threat to financial stability. As a result, regulators are monitoring this area closely. Interestingly, more than two-thirds (68%) of the executives surveyed agreed that big tech companies will become so mission-critical to the banking industry that they will become regulated institutions.