[Forbes, for Bank of the West/BNP Paribas]
For generations, commercial banking was constricted by legacy systems, segmented databases and the dominance of local branches.
No longer. Banking operations are increasingly expected to beseamlessly available at the press of a button. With recent pressuresfor remote working, customer-facing software and heightened riskmitigation, the industry’s need for innovative solutions has becomeeven more pressing.
Given this new landscape, banking today is moving increasingly tothe cloud. Driven in part by advances in fintech and the boomingdevelopment of new application programming interfaces (APIs),the industry is looking to adopt the agility, speed and innovationmore commonly found in the technology sector.
Soaring Benefits Of Embracing The Cloud
From account maintenance and loan applications to automatedreporting and cash flow management, clients want bankingrelationships that are not just defined by basic services and brick-and-mortar branches but by remote capabilities, integratedprocesses and flexible systems.
The benefits are increasingly evident, such as enhanced customersatisfaction, faster product development and more agile systemsscalability. The move to the cloud can also introduce importantcapabilities to access and mine data more prolifically as well asprovide opportunities for significant cost reductions throughautomation. Globally, these advantages are expected to pushrevenue for the cloud computing industry up 50% to $364 billion inrevenue from 2019 to 2022.
For us, the reality of this cloud-enabled agility was driven home inearly 2020 with the introduction of the federally funded PaycheckProtection Program, which aimed to provide small businesses withcritical funding at the onset of the Covid-19 pandemic. Installing anew loan application process into our systems, testing, adjustingand launching the program was an enormous task. By workingaround the clock, we were able to get up and running in 36 hours —a feat that would’ve been unthinkable if we were not running on thecloud.
Challenges Of Moving Too Fast
Migrating sensitive functions and data within a financialinstitution, however, is not a simple undertaking.
Ensuring operational security while upgrading legacy systems is adifficult — and frequently costly — endeavor. Internal systemsinstalled independently over the years as well as concerns aboutprotecting both customer and institutional data have forcedcommercial banks to proceed more slowly and carefully than othertechnology-led industries.
Many in the industry have remained reluctant to rely heavily on thepublic cloud. Indeed, a 451 Research survey at the start of 2019found that only 18% of financial institutions had broadly deployedcloud services. In such a highly regulated industry, transferring riskto a third party is always a concern, as data security issuessurrounding the transfer of information are paramount. Although aglobal repository for all customer data might be a bankers’ dream,regulators remain understandably concerned about the location of data and maintain tight restrictions regarding the residency ofcustomer data and its cross-border transfer.
For reasons of both control and security, many institutions restrictthe placement of data, applications and other software programs tothe bank’s private servers. By embedding their digital operations inan on-site, organization-specific cloud, banking companies can helpensure the strict security that is required to protect financial dataand customer information while providing developers and productmanagers greater flexibility.
This approach can work well if the institution is well-funded andmaintains a large IT department of developers and programmers —and can afford the flexibility needed for storage capacity.
Cloud Banking Allies With Fintech
For other institutions, a move to a public or hybrid cloud platform— combining private and public cloud — provides a more robustsolution. Although even the thought of placing your bankingoperations in a public cloud was taboo just a few years ago,providers today such as Amazon, Google, Microsoft or IBM canoften provide greater security, storage and innovation through awhite-label solution.
Few of the recent advances would be possible without the newflurry of fintech entrepreneurs. Customer relationshipmanagement, content management and document management areamong the processes that have been moved outside manyinstitutions’ legacy systems thanks to a surge of new companieshelping unbundle traditional banking operations.
Rather than viewing these fintech upstarts as competitors, bankswould be better served by accepting them as innovative colleagues that can effectively augment an institution’s internal resources.
For example, our commitment to economic and environmentalsustainability recently led us to team up with Swedish fintechcompany Doconomy, which has a solution that analyzes consumers’transaction histories to estimate the level of carbon footprint thateach transaction creates. Its system uses measures based on themerchant, their location, their merchant category code and thevalue of the transaction, among other things.
By accessing the company’s solution in the public cloud rather thandeveloping it in-house, we were able to pioneer our “1% for thePlanet” account and offer our customers a mechanism tounderstand their real-time impact on the world. Even as a largebanking company with deep IT resources, this achievement wouldhave been outside our current scope for purely internaldevelopment.
Accelerating To The Future
For years, every banking company has recognized that customers —both consumer and commercial — increasingly rely on digitalaccess to their financial products. With the recent pandemic,however, the acceleration of these efforts has been extraordinary.
Whether it was moving an array of digital transformation projectsforward on our internal list or simply adopting the acceptance ofDocuSign systemwide, remote access to files and processes meantbusiness survival. Having the ability to innovate and launch newproducts without the expense, time and risks associated with on-premises development has been key.
For the industry, the rapid development of cloud capabilities madeit possible. There is no reason to believe it will slow anytime soon.