Successful digital banking journeys are destined for cloud

by John Barber, Vice President, Europe, Infosys Finacle and Rama Gabbita, Global Head, GSI Partner Industry Solutions, FSI at Google Cloud

Here is a sprinkling of digital banking stats:

• Globally, more than 118 billion real-time payment transactions were made in 2021, up nearly 65 percent over the previous year, and expected to cross 427 billion by 2026.
• As per an estimate, about 75 percent of the population used digital banking in the United States in 2021.
• More than 96 percent of India’s 6 billion monthly UPI-based real-time open payments are originated by big tech and fintech companies.
• Today’s digital customers have high system performance expectations – for example, the response to a balance inquiry must not take more than 10 milliseconds; all services should be available 24/7; they also have a very low tolerance for technical failures.

As these forces, namely, increasing consumer digital adoption, rise of non-banking players, and high experience expectations, converge around them, traditional banks are pushing ahead with their own digital plans. And cloud is a key enabler of that transformation.

A recent report from Infosys Finacle and Google Cloud says that cloud is driving digital banking success in four ways:

Maximizing digital engagement by enabling insights-driven propositions: Today’s customers want banking experiences to match shopping on Amazon and viewing on Netflix – personalized, frictionless, and seamless across channels. In fact, they would prefer banking to be embedded so deeply within their primary consumption journeys as to be almost invisible.  To provide the innovative products and contextual experiences that customers seek, banks must gather customer data across channels, and use its insights to create personalized solutions. Only cloud can meet the analytical requirements of banks, which on average, handle 1.9 petabytes of data each day. By providing seamless, democratic access to data and real-time interactions at unlimited scale, as well as a variety of tools, cloud helps banks engage customers better.

Driving digital innovation in the form of platform banking models:  Innovation leadership passed on to non-bank players, such as fintech and big tech, a few years ago. With retailers, telecom operators, and other businesses making a play for certain financial service niches, competitive boundaries have started to blur; the good news is that this has opened up opportunities for incumbent banks and their new rivals to collaborate within an ecosystem or embedded model of banking. Cloud supports this by cutting down the cost and time of provisioning compute and storage resources for innovation, besides offering a variety of technology capabilities as a service. This allows banks to take new products to market much faster than before. For instance, China’s WeBank – a leading cloud-based, digital-only bank – is estimated to release 1,000 updates a month, whereas an average universal bank manages only 50-100.

Achieving operational excellence by improving resilience, performance and cost-efficiency: Traditional banks’ operations have been under stress for several years now. Low interest rate incomes, especially in industrialized markets, steadily eroded margins even as compliance and other costs continued to increase. New digital players with light (or zero) physical infrastructure and no legacy technology burden operated at a cost-to-income ratio of 20 to 30 percent, less than half of many banks. With relatively easy capital flowing in, they were also much more agile than incumbent institutions.

When the pandemic broke out, causing an unprecedented increase in digital transactions, resilience joined cost efficiency and performance in the list of operational priorities. Only cloud had all the answers.

Cloud offers highly stable and robust infrastructure, at much lower than on-premise costs. Also, banks can consume technology as a service, saving the cost and effort of managing and maintaining systems.  Use of public cloud services can further cut operational costs.

In conjunction microservices, Containers, and DevOps, cloud streamlines software development to enable fast and flexible deployments at scale. Last but not least, cloud has the strength and scale to maintain high performance even at peak workloads.

Multiplying value from modern technologies: Advances in artificial intelligence (AI), machine learning, blockchain and other digital technologies can bring enormous value to banks. But they also need massive compute and storage resources. Only cloud can provide these capabilities.

In a recent research study conducted by Infosys, a third of banking respondents said that cloud enabled them to develop highly integrated AI capabilities.  Cloud provides a foundation to run AI and big data models, as well as the latest AI tools on a subscription basis.  It also amplifies other technologies, including blockchain by enhancing scalability and performance.

Way to go

While there is widespread agreement that cloud is the way forward, the journey has been slow so far. Among the different deployment models, private cloud is still the most popular option, being used by 41 percent of banks, while hybrid and public cloud are used by about 30 percent. For the many banks that do not use cloud services, the barriers mainly stem from regulatory and cost issues. It is important to address these concerns without delay and get on cloud, so as not to get left behind.

A question that even banks that have committed to cloud ask is what is the best way forward. Based on our experience, we recommend that banks consider the following while embarking on their journey:

• Scale cloud maturity by moving mission critical workloads along the cloud continuum, Infrastructure as a Service (IaaS) to Platform as a Service (PaaS), and finally, to Software as a Service (SaaS).
• Adopt multi-pronged transformation for migrating applications, leveraging rehosting, refactoring, re-platforming or other options based on application size, customization needs and the level of transformation skills.
• Use hybrid cloud to get the best of both public and private cloud worlds.
• Follow a multi-cloud strategy to unlock maximum value across different workloads and requirements.
• Last but not least, go the distance. It is necessary to migrate a critical mass of at least 60 perent of the workload to achieve optimal results.

To know more about how banks can scale their cloud success, read the report “Scaling Digital Transformation with Cloud”. The report by Infosys Finacle and Google Cloud delves into the need to accelerate cloud adoption and provides insights on the potential impact of the cloud across value streams. It also highlights the current state of the industry and puts forth key recommendations to scale cloud success.