What is cloud banking?

In addition to offering greater ease and accessibility, cloud-based banking improves the customer experience in other ways, including the ability to pay for many things online. When a customer of a financial institution that provides cloud banking services watches a pay-per-view film at home or requests a ride through a rideshare app, they reply on cloud native digital banking services. These services facilitate the transaction, ensuring a seamless payment process.

In addition to powering many consumer services, the cloud ecosystem also helps the financial sector lower costs and meet other business needs. From powering applications that enhance remote work to delivering the high compute power needed to run artificial intelligence (AI), machine learning (ML), and Internet of Things (IoT) applications, banks everywhere are using the power of cloud platforms.

For consumers, cloud banking has made everyday activities like shopping and transportation much easier. Consider the task of buying groceries and picking up your kids from school. Before cloud banking was a reality, these tasks would require multiple stops in different locations. Now, someone can accomplish them using only a smartphone with a cloud banking app.

The power of cloud banking doesn’t stop with the consumer though. Increasingly, the banking sector is using it to improve data security, create more innovative products, and deploy cutting-edge technologies like AI and ML to automate mundane tasks. In fact, cloud migrations at financial institutions have become so widespread, the sector is far outpacing others (PDF) and currently accounts for as much as 16% of global cloud expenditures.

As financial institutions seek to use the cloud to deliver better products and services to their customers and achieve their own digital transformation goals, they are realizing several important benefits.

Shifting workloads to the cloud has allowed banks to lower costs associated with data storage and data analysis. Considering banks are required by law to maintain detailed financial records for all customers, this area holds great potential for uncovering valuable insights. Cloud banking lets financial institutions shift from an up-front, on-premises data storage model to more flexible, pay-as-you-go solutions that can be adjusted as their needs change.

Because they protect customers’ most important information and assets, banks are frequent targets of hacking and fraud attempts, but shifting financial services to the cloud has made them safer. Modern cloud banking solutions keep customer data safe through added layers of protection, such as encryption and fraud detection. Cloud banking solutions also help banks stay in regulatory compliance with the ever-changing regulations that govern their industry. Finally, many cloud offerings have built-in disaster recovery (DR) capabilities that help financial institutions recover swiftly after a security breach or massive outage.

Using the cloud has opened banking systems to the power of AI across multiple workloads. One example is in the field of customer data and product development. When a bank stores customer data in the cloud, AI algorithms can constantly scan it for insights into customer behaviors that can then be used to design new products and features. Another example is in the customer relationship management (CRM) space where AI chatbots and virtual agents are already replacing call centers. These tools enhance customer support by assisting with various tasks, such as opening new accounts, transferring money and applying for a credit card.

Because cloud banking is such a vibrant and technologically innovative space, there are new applications and services being designed every day. This means many cloud banking capabilities are off-the-shelf, dramatically shortening the amount of time it takes a bank to offer it to their customers. When a bank that’s already deploying cloud infrastructure spots a customer need that isn’t being met, chances are there’s already an off-the-shelf application available that would immediately improve the user experience.

In its early days, cloud banking was simply a way for banks to deliver financial services to their customers remotely rather than in person at a physical location. As the industry has evolved, banks are increasingly using the cloud to find new efficiencies in infrastructure and banking operations, especially data storage and processing.

In the 2000s, smartphones and faster internet speeds ushered in an era of digital innovation in the banking industry. This sector once burdened by the costs and constraints of physical infrastructure began to change. Soon, banks were offering more services digitally. After initial concerns about data protection and security, customers began to trust the space more and become more open to conducting transactions online.

By the second decade of the new century, it was normal for customers to access their accounts online, at any time of day, often on the device of their choice. As security capabilities in public cloud offerings increased, banks began to access their servers and databases over the internet as well, rather than through on-premises data centers as they had in the past. These made banks customers for both private cloud and public cloud solutions and began the current era of cloud banking. This shift ushered in the current era of cloud banking, where cloud service providers (CSPs) compete in security, technology and adaptability to meet banks' evolving needs.

When shaping a cloud strategy, financial institutions face a delicate balance between customer demand for the newest applications and services, adherence to demanding regulatory requirements, and cost. One of the most important choices they must make is between a public and private cloud.

When banks first started to move their services into the cloud, most chose a private cloud environment because it was considered more secure. A private cloud is a cloud computing environment that belongs entirely to a single organization. All cloud services on a private cloud being used by a financial institution are delivered on a private network, limiting the ability of bad actors to penetrate it and compromise customer data. Private cloud infrastructure is typically located inside a data center owned by the financial institution or managed by a contracted third-party vendor. This setup provides an additional layer of security. Despite the attractiveness of the private cloud in terms of security and control, it lacks the scalability and flexibility offered by the public cloud. As public clouds continue to enhance their security, many banks are now opting for them as a viable option.

A public cloud is a cloud that’s hosted in the public domain that can be accessed over the internet. Many of the biggest companies in the world, including Amazon Web Services (AWS), IBM and Microsoft Azure host public cloud instances. A public cloud lets financial institutions store customer data in centers and scale the services they subscribe to up and down as needed. The public cloud model offers significant advantages in cost, scalability and flexibility. However, some financial institutions have concerns about privacy laws, as many servers storing sensitive data are located in different countries.

Hybrid cloud and multicloud solutions seek to combine the advantages of cloud computing from both the public and private ecosystems. Hybrid cloud environments are exactly what they sound like: a combination of private and public cloud offerings. Multiclouds are instances where cloud customers select various services (public and private) from numerous providers. Hybrid and multicloud banking deployments are growing in popularity because they allow financial institutions to shop for the lowest prices available from several providers when selecting a cloud service.

As financial institutions embrace the cloud and its many benefits, use cases are increasing every day. Small and large institutions alike are launching new digital transformation initiatives with cloud transformation at their centers. Here are a few ways cloud banking is changing the world of financial services.