Digital disruption, fuelled by technology innovation has hit every market the world over, and financial services has been a poster child for this revolution. Digital banks and fintechs have forced traditional banks, such an ING, Lloyds, and Deutsche Bank to completely rethink the way they deliver services to keep customers and protect their very existence.
Fintechs have become increasingly attractive to consumers, quite simply because they are simple to use, are incredibly convenient, and make life a lot easier. Fintechs are organised in a way that they can “cherry pick” the most profitable banking services and avoid those that deliver less profit. Traditional banks have woken up to the fact that these nimble, digital-first organisations are a potential threat to their business, across emerging markets, but increasingly also within Western Europe.
Financial services remains a heavily regulated industry, and attempts to innovate are often stifled by considerations around managing risk. While risk mitigation should continue to remain a high priority, failure to innovate may be even riskier. McKinsey reported more than three years ago that legacy financial institutions will see profits decline 20 to 60 percent by 2025 if they fail to evolve digitally.
It’s perhaps unsurprising that some of the world’s leading financial services organisations have made the shift to cloud computing as they seek to build a technology platform that can prepare them for the digital era and help them meet challenging targets. While it may be obvious that the cloud represents a utility-based approach to technology that is more cost effective, there are other benefits which are just as powerful.
For example, cloud computing offers banks protection against technology obsolescence, by eradicating costly, time-consuming upgrades and delivering the latest innovation directly to end-users. Increased regulatory demands mean that financial institutions must not only protect their data but also prove that it is safe. Having access to a single security model via the cloud is another huge benefit for financial services organisations.
For financial services organisations, cloud computing is also about re-imagining traditional processes such as statutory reporting, regulatory reporting, and management reporting to embrace dynamic, rolling processes and performance management. It’s about implementing lean principles to eliminate non-value-add activities and drive continuous improvement.
And as regulations change and agencies provide updated guidance, cloud providers can update their software services to remain compliant, without imposing an upgrade burden on the customer. Adapting to new rules and guidelines is more manageable if processes and systems can be updated in the cloud rather than on a multitude of systems or different versions of a system. It’s no surprise PwC predicted that the cloud will become the dominant infrastructure model in financial services.