Banking

Why cloud? Why now? Because your customers won’t wait

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In real estate, the three most important words are “location, location, location.” In banking, the three most important words might be “speed, speed, speed.”

In banking and in financial services generally, we’re seeing new technologies emerge every day, in both customer-facing and operational capabilities. And we’re seeing banks move processes and services to the cloud instead of running them from their own data centers. Migrating to the cloud can be in expensive process, but it’s the longer-term benefits that have massive impacts. Once on running with cloud solutions, banks have a vehicle for fast, efficient app development, making net new development much cheaper. That’s main reason banks are going to the cloud is to gain quickness, agility and nimbleness. Banks want immediate scalability. If a bank is operating a system in the cloud, it can integrate services more rapidly and knit together a variety of unique services for the customer, whether it created those itself, procured them from a fintech, or got them from somewhere else. Regardless of the source, in the cloud, a bank can create unique experiences quickly, almost on the fly, and bring those to their customers to meet a range of financial needs.

Digital is pervasive—and digital means cloud

Digital is truly everywhere—and it happens in the cloud, because that’s where it is most effective. This is due, in part, by the rise of the fintechs, which are driving innovation across every area of banking. Fintechs were nearly all born in the cloud and they operate with a nimbleness that enables them to serve customers very effectively. Banks are hungry for that nimbleness. But the banks are slowed down by regulatory and compliance requirements and also, in many cases, by monolithic back office systems. Often these are legacy systems cobbled together over the years with bits and pieces of software that don’t always function together smoothly.

The good news is that, as banks transition out of that older, slower architecture and mindset into a faster-paced, customer service mindset, they have a great opportunity to create better customer experiences. The importance of the customer experience can’t be overstated. In fact, a report from the IBM Institute for Business Value found that 74% of the business leaders they surveyed cited “Improved customer experience” as one of the most important outcomes of a successful cloud initiative.[1] As I mentioned in an earlier blog, it’s great customer experiences that will determine the winners in today’s hyper-competitive banking environment.

Move aggressively—but proceed with caution

Yet, even as we’re seeing tremendous momentum in this move to the cloud and digital, sometimes the process moves two steps forward and one step back. There’s an urge to be as aggressive as possible in embracing new technology and engaging with emerging players in the industry. But then we hear news of a major data breach somewhere and there’s a retrenchment almost immediately. Banks will say, “Slow it down. Let’s harden our security policies and maybe not exit our data center just yet. We can’t risk compromising our data or our customers.” That’s pretty normal—and prudent—in this sort of major transition. Cloud security has advanced monumentally but it’s inevitable that we’ll have these temporary setbacks from time to time.

It’s instructive here to look back at all the banking technologies that have been rolled out over the last few decades. In the past, banks had to force customers into using new technologies. Look at ATMs or computerized banking—these technologies where innovations to help cut costs. Initially, the public was skeptical. The thought of getting money from a machine or depositing a check by taking a picture of it sounded a little crazy when they launched. The tables have turned, however. Now, customers are the ones pushing banks to adopt new technologies. Customers are showing banks that they want to have digital interactions—demanding things like instant peer-to-peer payments and robo-advisors.

Speed, speed, speed

Again, success in today’s banking environment hinges on speed, speed, speed. And the banks know it. They’re moving to the cloud and exploring ways to integrate financial ecosystems that could never have been integrated before. It starts with specific lines of business but ultimately, I believe, this move to the cloud will transform banks, banking relationships, and the entire banking industry.

[1] Bill Karpovich, Lynn Kesterson-Townes, Sanjay Rishi, Beyond agility: How cloud is driving enterprise innovation, IBM Institute for Business Value, April 2017

Banking and Financial Markets Lead Partner, Global Business Services at IBM

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