Mission critical banking transformations and the cloud

Mohammed Muneebuddin of Cloud4C explains what’s behind the growth in the take up of cloud-based solutions in financial services.

Cloud computing comes in a range of flavours, each with its own unique characteristics, Mohammed Muneebuddin, Vice President – Global ISV and BFSI with digital transformation specialist Cloud4C offers a simple clarification:

“Public clouds are like shared apartments. You have your private space, but you share infrastructure with others. They are cost-effective and feature-rich and have significant scalability on demand.

“Private clouds are like owning a private home. You have complete control, offering flexibility and customisation but this comes at a higher cost. These are often chosen for high-performance, or compliance needs.

“Hybrid clouds combine both public and private clouds, allowing organisations to harness the benefits of both. They are ideal for workloads requiring scalability, security, etc.

“There’s also a fascinating development – Industry clouds tailored to provide pre-configured services catering to industry-specific needs, driving cost-efficiency and innovation.”

As recently as 5-10 years ago if you had said to a bank that it would be moving its operations and data onto the cloud – most would have laughed – what changed?

“The shift in the banking industry’s perception of the cloud over the past decade stems from a convergence of pivotal factors:

  • The intensification of FinTech disruption in the last 5-10 years forced traditional banks to rethink their strategies. Cloud technology became a linchpin for agility and competitiveness.
  • Banks recognised the imperative of digital transformation while preserving legacy systems. Cloud solutions facilitated modernisation without significant disruptions, enabling a quicker transition to digital-first banking.
  • Independent Software Vendors (ISVs) played a pivotal role in developing cloud-native applications that fostered personalisation, essential for staying competitive and meeting customer expectations.
  • Regulatory bodies adapted to the changing landscape, offering guidelines and frameworks that supported secure cloud adoption, instilling confidence in cloud-based strategies.

“In essence, this transformation reflects the banking sector’s response to intensified FinTech competition and the need for rapid digital transformation. Cloud technology empowers banks to embrace collaboration, innovation, and agility while ensuring regulatory compliance and data security.”

Is a move to the cloud just one part of a larger digital transformation project?

“A digital transformation project is a holistic change that encompassing culture, processes, products and services. First, establish a well-defined strategy and scaling roadmap. Leadership should embrace the cloud as a strategic cornerstone. Focus on achieving quick, tangible victories. Cultivating strategic partnerships with Cloud Service Providers (CSPs) is invaluable, along with robust business advocacy and a deep understanding of the cloud’s advantages. Next, prioritise enhancing customer experiences within business units, enhancing the overall value of their operations.
“Lastly, establish a strong foundation of automation to eliminate manual processes and truly embrace digitalisation. For instance, replace application-specific architectures with automated application patterns, transition from manual security approvals to security-as-code practices, implement advanced FinOps for comprehensive cost visibility, adopt a full-fledged devsecOps model, and seamlessly integrate hybrid operations that span on-premises and cloud environments. Such a comprehensive approach ensures a smooth transition to the cloud while aligning with broader digital transformation objectives.”

How much of an issue is internal culture within the bank?

“Traditionally conservative sectors like banking often face resistance to change. To overcome this, banks must reorient Key Result Areas (KRAs) and Key Performance Indicators (KPIs) to demonstrate how cloud adoption aligns with their business goals.  Effective communication, comprehensive training, and leadership role modelling are essential. Executives and managers must lead by example, actively championing and using cloud technology. Incentives and recognition programmes can also motivate employees to embrace the cloud.

“By fostering a culture of openness to change and aligning the workforce with the bank’s cloud strategy, banks can successfully navigate internal cultural challenges, ensuring a smooth transition for cloud technology adoption.”

How do the needs of neobanks differ from those of legacy institutions?

“Neobanks, being digital-native, have distinct needs, especially in the realm of new technologies including cloud computing. A core differentiator lies in their digital DNA, as neobanks prioritise seamless mobile apps, intuitive online experiences, and rapid FinTech innovation. This inherent digital-first approach allows them to create an integrated and cohesive cloud technology ecosystem from the outset, unlike traditional banks burdened with legacy systems that may require complex and costly cloud integration efforts.

“What sets neobanks apart is their agility in adopting ‘best of breed’ systems, selecting the most advanced and efficient technology solutions available.  Moreover, neobanks are also collaborating with traditional banks, bridging the gap between innovation and established banking expertise. These partnerships enable neobanks to expand their reach, while traditional banks gain access to cutting edge cloud capabilities, both parties benefit from the fusion of modern technology solutions with the legacy financial landscape. As a result, this synergy between neobanks and traditional banks leverages each other’s strengths to meet evolving customer demands and regulatory standards.”

What key trends do you see in the market for the coming year and the longer term?

“Several trends are shaping the market:

  • Banks are increasingly shifting their core banking systems to the cloud, seeking to bolster agility and operational efficiency. This trend aligns with analysts’ projection that by 2025, a staggering 85% of organisations will prioritise cloud adoption.
  • Banks are also using cloud-native technologies for rapid application development and deployment.
  • AI/ML are becoming increasingly popular in the banking industry, to improve customer service, fraud detection, and risk management capabilities One recent survey found that AI apps are estimated to help banks save up to $447 billion in costs.
  • Generative AI is poised to have a big impact on the financial services sector, adding $200-$340 billion in value (9%-15% of banks’ operating profits), according to McKinsey. From eliminating email traffic, speeding up the bank programmers code to accessing reports and documents during client conversations for financial advisors, Gen AI is being applied in multiple areas in the financial services domain.
  • As stated by Bloomberg, the metaverse could be worth $800 billion in 2024. Banks can surely tap this with millions of Gen-Z and Gen Alpha are already interacting with this market.
  • Open banking is gaining momentum, but security remains a top concern as hackers target banks’ vulnerabilities. Cloud technologies like Kubernetes and zero-trust models have improved how banks design, develop, and operate these connections, making them more secure.
  • Security is always a top priority for banks, especially given the frequent regulatory changes that occur.
  • Data localisation is a burning topic across the world and will play a major role in how banks adopt the cloud.”

Where do you see the biggest opportunities and the biggest challenges going forward?

“One significant opportunity on the horizon is the escalating demand for cloud services within the financial industry. Collaborative ventures with Independent Software Vendors (ISVs) open up a unique avenue for us to craft tailored solutions that precisely address the evolving needs of financial institutions.

“Yet, challenges persist, with a spotlight on security, regulatory compliance, and the intricate landscape of financial inclusion. The call for robust, compliant, and secure cloud solutions to safeguard sensitive data is more urgent than ever. Navigating the complexities of regulatory requirements while staying ahead in the competitive arena necessitates a nuanced approach.

“Emerging trends such as embedded finance and Banking-as-a-Service (BaaS) add an extra layer of considerations to our strategic outlook. The integration of legacy systems, while posing challenges, also presents opportunities for us to create seamless solutions that bridge the gap between traditional and cloud-native services.

“Successfully steering through this dynamic landscape requires us to strike a careful equilibrium between innovation, security, compliance, and a keen awareness of financial inclusion and emerging financial trends. It’s this delicate balance that will be pivotal in our journey to deliver tailored solutions that meet the diverse needs of our clients in this rapidly evolving industry.”