Cloud Computing – Providing Horses for Courses
In the last five years, an increasing number of Banks and Financial Institutions have adopted cloud-based technologies. It is seen as the next ‘hot technological trend’ in regions including UK, US, Africa, South-East Asia, Asia-Pacific and Australia. Cloud-based IT solutions offer an attractive opportunity to reduce upfront investment in IT systems and resources. Another luring aspect is that customers no longer have to wait for years for the implementation to complete, they can often immediately get access to the solution after signing the contract.
According to an Ovum Report*, In 2014, at least 70.5% of the retail banks were considering Software-as-a-Service (SaaS) as a deployment model, and 61% were spending up to 40% of their net spending on Infrastructure-as-a-Service (IaaS).
Today, small banks, new entrants to the banking industry and financial institutions (FI’s) backed by latest technology are able to gain share the market that was once dominated by the bigger players. Through the ‘Pay as You Use’ SaaS model, these institutions are now using cutting edge technologies despite limited finances and are even competing with established banking institutions. New entrants are strategically leveraging low cost cloud solutions to offer reduced borrowing rates and higher interests on savings to gain a competitive advantage over the existing players burdened with high cost infrastructures.
As quoted by Nestor A. Espenilla Jr. (Central Bank Governor of Philippines), “Cloud computing can increase the competitiveness of our smaller banks. For smaller banks, this is a cost-effective way for them to store and manage their data without having to invest in infrastructure”.
This in no way means that the bigger players are not in the game. Major global banks have publically announced cloud investments in IT infrastructure as the next high priority investment, followed by cloud investments in corporate banking, retail banking, and payments. Here too, a lower IT cost plays a critical role and the solution allows the big players to easily and quickly expand into new geographies.
Public cloud also offers other benefits like agility and innovation. However, the Banking and Financial industry needs high data privacy and security, which is why 70% of the major global banks are using private cloud. It not only helps cut costs, but gives a better and complete control over the entire system and resources.
Different regions across the globe have shown varying levels of interest in cloud-based technologies. Be it in Africa, where some FIs are already leveraging this technology and others have demanded the same at Microfinance events. In Philippines, the regulatory framework is being amended to promote cloud in the banking domain. Similarly in the UK, various building societies have already adopted this solution, and other regions too are showing high interest. As a whole, cloud has picked up pace and popularity everywhere.
Offering a cloud-based solution also has significant implications for IT vendors on their sales and support approach. It is vital to understand customer requirements in detail and offer the appropriate cloud solution (public, private, hybrid, etc). Selling cloud solutions involves key technology discussions and is consultative in nature. The implementation and longer term support relationship is also different to traditional software, with the vendor being highly focused on ensuring customer success is achieved quickly and consistently to ensure continued use of the service.
To conclude, cloud is transforming the banking and financial sector like never before. For some Banks and FIs, cloud is becoming an inevitable criterion for selecting a software solution. Now that the cloud market is picking pace, offering this solution will prove to be a competitive advantage over other players in the near future. Probably in the coming few years, cloud computing will be a point of parity and not difference.
*Ovum Report: The Critical Impact for Cloud in the transformation of Retail Banks
Nucleus Software’s lending (FinnOne NeoTM) and transaction banking (FinnAxia) product suites are designed to be delivered via public or private cloud as well as on premise. Click on the links to find out more.