Value #Reimagined –
Cloud for Cost Efficiency to Cloud for Business Enablement

Other Trends

After a decade of disruption, today cloud computing is a critical component of every enterprise’s IT strategy. However, in the financial services industry, its implementation has largely been limited to the fringes of the bank, and perceived merits limited to cost efficiencies. According to IDC Financial Insights, banks can potentially save up to $15 billion from cloud adoption by 2019. Although the cost benefits remain undisputed, in 2018 banks will start to look beyond, and see cloud as an enabler of business rather than a driver for cost reduction.

Up until now, large banks have been moving their peripheral systems, like HR, procurement and receivables, on to cloud. But, we now see a trend where banks are more open to moving their core systems onto cloud. The reasons for this trend in 2018 will be twofold, maturity of cloud environment and change in the regulator’s approach towards cloud.

Maturity of the cloud environment is because of the global technology giants such as Google, Amazon, Facebook and Alibaba (GAFA) that have built proprietary cloud assets, and offer database, infrastructure and application services, all on the cloud. The pace of development and adoption will only accelerate in 2018. From the good old consumer-centric Gmail, to enterprise grade database and server class devices of today, these technology leaders are effecting a unique osmosis of consumerization of the enterprise, and vice versa. Amazon launched its cloud based voice service earlier this year. Alibaba, primarily a retail giant, owns a cloud, an AI engine, and its own data centers. Even traditional enterprise IT giants such as Oracle, IBM and Microsoft offer their infrastructure and database, ‘as-a-service’ on the Cloud.

These players have spearheaded the evangelization of cloud so far, but a welcome change is helping push the envelope now. Traditionally hesitant regulators are reducing barriers and are coming out with guidelines to help entities to make their cloud adoption journey less painful. Many cloud service providers are working with regulatory bodies across the world to help move the needle on cloud adoption among their member organizations. Today, AWS has more than 70 data centers compliant with regulations in 18 geographic regions.

Leading cloud service providers not only provide services lock, stock and barrel (Iaas, PaaS, SaaS, BPaaS,…), but over the years have built the capability to provide service standards equivalent to those of on-premise infrastructure, with high performance, 24x7 availability, and the flexibility of moving workloads between clouds. The level of sophistication of cloud services today, also allows banks to go for a private cloud environment within a public cloud, alleviating concerns around security while providing the cost benefits of public cloud. In 2018, more banks will be comfortable with the public cloud. With proof of security of data on their application infrastructure, banks are looking to experiment with new public and private cloud arrangements. Progressive banks are looking at definitive targets to advance their public cloud initiatives and build more cloud native applications. DBS Singapore is a case in point. The bank plans to move up to 50% of its compute workload to the cloud by 2018.

What’s more is that banks and financial institutions can accelerate their innovation efforts with the flexibility of public cloud, an approach championed by technology giants such as GAFA, to rapidly introduce new features, and scale. By moving their sandbox environment to public cloud, banks can ensure seamless integration with FinTechs and third party APIs in the digital ecosystem. In addition to integration, banks also want to replicate the success that some of the new digital companies have seen with cloud, in terms of flexibility to scale and growing the fee based revenues through platforms and APIs. All the more reason for banks to look at cloud as a revenue lever than a cost lever in 2018 and beyond.

Clearly, the case for next stage of cloud adoption in banking is made, and the question is not if a bank is moving business to the cloud, but ‘how much’. The level of cloud adoption is emerging as a leading indicator of a bank’s EBITDA, with direct correlation to not only people cost and overall cost efficiency, but also revenue growth.