The deep dive: Cloud adoption by banks

By Puja Sharma

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

It is the cloud that provides the robust, flexible, and scalable data system that allows traditional banks to keep up with the innovations that born-in-the-cloud challenger banks are bringing to the market. Taking a hybrid and multi-cloud approach to this is becoming increasingly popular. By leveraging the cloud, banks can improve their agility and introduce operational efficiencies. Cloud adoption is fundamental to gaining a competitive advantage and benefitting from a reduction in operational expenses. The ability to scale is the leading driver of migration to the cloud as a scalable cloud solution provides greater business flexibility and cost-saving.

The way people use their finances has changed significantly, particularly when it comes to payments and transfers. The GFT blog revealed that 86% of bankers have migrated to cloud services to take advantage of its virtually limitless scalability, citing a change in transaction behavior as their main reason for doing so.

Consumers use their banks in a whole new way now, thanks to BNPL, contactless payment systems, and open banks, all of which provide a more efficient and convenient way to manage their finances. Yet high street banks still lag behind challenger banks due to their legacy processes and, hence, are unable to migrate as easily to new technologies, such as the full use of cloud and artificial intelligence.

Who is under the radar?

Industry across all sectors is undergoing rapid transformation due to cloud computing and its associated services. With the rise of mobile banking, FinTech, and virtual transaction services from PayPal, Google, and Amazon, the banking, financial services, and insurance sector is the most active user of cloud computing. In a report by IDC, the banking sector is expected to spend $16.7b on cloud services, growing at 23% of CAGR. Despite the rapid growth and multiple cloud strategies in place, cloud adoption is slow in the banking sector.

Cloud adoption Despite security concerns continues to grow worldwide. In 2021, organisations globally were using an average amount of 110 software as a service (SaaS) applications, compared with just eight in 2015, showcasing a startlingly rapid increase.  There has been a notable expansion in the use of multiple Infrastructure as a service (IaaS) providers, with almost three-quarters (72%) of businesses globally using multiple IaaS providers, up from 57% the year before. The use of multiple providers has almost doubled in the last year, with one in five (20%) of global respondents reporting using three or more providers.

The IBS intelligence data shows a majority of companies are considering diversifying their cloud technology, with 76% of bankers now agreeing to the importance of implementing multi-cloud systems so that they can benefit from the improvements in security and resilience made by the main cloud providers. Hyperscalers also release regular updates and continue to develop exclusive new services and platforms as they continue to innovate.

Why does it matter now?

A vast majority of financial companies are already using the Cloud to enhance their services, around 83% of them deploy it as part of their primary computing infrastructures, a Google Cloud survey found. Of those using the technology, the most popular architecture of choice is Hybrid Cloud (38%), followed by Single Cloud (28%), and Multicloud (17%).

Retail and commercial banks will triple their use by 2025 and migrate more client-facing applications and data to the cloud. Three groups of banks can be identified: Cloud leaders, followers, and conservatives. Three groups have the same ambition to triple its use it. However, leaders place much greater importance on the business benefits of cloud-enabled transformation than Cloud conservatives.