Like many other industries, banks are confronted by swift progression in technology and evolving customer demands. This is why they’re enduring a massive digital metamorphosis, mainly the application of cloud computing in financial services. Presently, only 13% of industry leaders have migrated their data. However, since the pandemic of 2019, nearly 54% of financial businesses plan to hybridize their services in the coming years.
According to a Grand View Research report, the global cloud banking market reached 23.23 billion USD in 2022 and is expected to grow to 102 billion USD by 2030. So far, the United States remains a leader in business transformation, thus hugely contributing to the global finance cloud commuting.
In this article, we’ll discuss cloud computing in the finance industry, the benefits of using cloud computing, and the institutions that have migrated their data and introduced the new technology into their business processes.
What Is Cloud Computing in Banking
Cloud computing in the banking sector stands for a smooth shift of data from a local system (unresponsive and outdated) to a flexible environment that offers lower costs. Diverse transition models are available for a financial institution. Even though they differ, they all help businesses quickly shift from a capital-intensive approach to an adaptable, modern business model that reduces 76% of operational expenses.
Below, we’ll shed light on the most popular cloud models, concentrating on their appropriateness and deployment strategy:
- SaaS. Under the Software-as-a-service model, a service provider hosts data sets accessible to end-users via browsers. This scheme applies to many financial services categories: ERP, customer relationship management, service desk management, invoicing and accounting, HR, content, and more.
- PaaS. Under the Platform-as-a-service model, a provider of cloud computing in finance renders a massive environment for establishing and storing databases, applications, interfaces, and even testing. This model reduces the requirement for hosting environments, software, and hardware.
- IaaS. Under the Infrastructure-as-a-service model, enterprises can buy resources like servers, data center space, software, and other equipment as 100% outsourced services. This diminishes the demand for direct ownership and physical infrastructure management, giving enterprises more time to focus on core activities.
- BPaaS. Under the Business process-as-a-service model, cloud computing in banking is exploited for standard operations like HR, billing, and wages. The advantage of the BPaaS model is that it combines the expertise of other business models and promises an all-around focus on service optimization.
Cloud computing for financial services is deployed in the following ways:
- Public clouds
- Private clouds
- Hybrid clouds
The infrastructure for public computing services is accessible to industry groups. A public cloud is owned by an organization providing cloud services to end-users.
With private clouds, the architecture is available to a definite organization (e.g., a bank). It’s placed on a company’s premises, and the business itself or a third-party partner manages the private cloud. A high-security level is why private cloud deployment takes over public cloud deployment.
Hybrid cloud deployment includes several private and public clouds. And though such clouds can retain their identities, they are always connected and deliver unified services.
How Cloud Computing Is Used in Banks
Present-day finance institutions normally choose external service providers for cloud maintenance and support. Yet, recent Gartner reports state that banks are considering developing and keeping their cloud activities internally within their IT infrastructure.
As of now, cloud computing for banks is used for a variety of objectives. The main ones are:
- Data Analysis. Nowadays, banks depend on cloud computing to study tendencies and obtain advanced analytics, thus gaining valuable insights into customer experience and consumer behavior. Once banks understand how their customers interact with the services and products offered, they can create offerings to meet customer needs and expectations, thus growing their customer base.
- Fraud Detection. Cloud computing in banking and financial services helps to detect and prevent fraud while analyzing large amounts of data gained from manifold sources. This assists banks in tracking down any distrustful transactions before harm is done.
- Customer Relationship Management. The establishment of cloud computing in banking means using cloud-based CRM systems to manage client data and interactions. This allows businesses to render more customized/personalized services based on their clients’ preferences and needs.
Benefits of Cloud Computing in Financial Services
The multiple benefits of using cloud computing in the financial industry are why institutions embrace this new approach. Below, we’ll focus on the core ones:
- Improved fraud detection
- Reduced costs
- High levels of security
- Compliance with regulations
- Improved customer relationship management
- Scalability
- Green IT
- Operations efficiency
Improved Fraud Detection
What’s fraud in finance? The notion encompasses direct fund thefts, loan applications made under false ID, fake bank accounts, tax evasion, money laundering, stock manipulation, etc. Cloud computing in the banking industry helps to analyze massive data sets coming from different sources and, thus, detect potential dangerous/suspicious activities (fraud) and address them before they cause any damage to a banking system or clients.
Reduced Costs
For any financial institution, their data storage costs are typically the main pain. With financial cloud computing, reducing costs is a reality. Instead of paying significant upfront costs to deploy large on-premise systems and maintain them, banks choose pay-as-they-go pricing models. At the same time, the cloud environment provider manages data storage administration and maintenance. Thus, banks can reduce their IT infrastructure, IT staffing needs, and the need for hardware equipment.
High Levels of Security
Banks are responsible for storing extremely sensitive user data (personal and financial). Though this can be done with on-site electronic data storage, it requires a well-staffed IT department with experience and expertise in data security. Banking cloud computing providers follow stringent requirements for data storage, privacy, and security. This means that customers’ data is under many levels of protection against breaches and cybersecurity attacks.
Compliance with Regulations
When it comes to industry regulations regarding customer data, there is a long list of security, data, and privacy laws to consider. Cloud storage providers usually adhere to very strict data security and privacy requirements, thus giving financial institutions peace of mind when choosing to shift to the cloud.
Improved customer relationship management
Cloud-based CRMs are the number one choice by most modern banks worldwide. This choice is quite easy to explain: around 73% of customers served by financial institutions expect their providers to understand their expectations, needs, and unique desires. When choosing the right cloud strategy, a bank can provide any kind of personalized offerings and services to meet their customers’ needs and grow their client base.
Scalability
In cases of peak loads, financial institutions had no other option but to buy extra resources and infrastructure. The use of cloud computing provides a bank/financial organization with all the flexibility it needs to scale up or down. As demand changes during the year, banks can automatically increase or decrease their capacity to match the fluctuation.
Greet IT
This is quite a new but exceptional benefit of financial services cloud computing. Once a financial institution shifts its services to the cloud, it lowers its energy consumption and carbon footprint, minimizes idle time, and utilizes computing power more efficiently.
Operations Efficiency
Overall, the cloud environment helps banks improve the efficiency of their operations on many different levels, including disaster recovery, quality control, risk management, flexibility, loss prevention, and more. Once banking portals are hosted on the cloud, a financial institution can concentrate on reducing expenses with an uptime guarantee (99%).
List of Banks Using Cloud Computing
Some banks are already leading the way in adopting the innovations offered by cloud computing in banking. HSBS, Capital One, and JPMorgan Chase are among them.
HSBC chose cloud computing to improve its operations. After moving its data sets and all applications to the cloud, the financial services organization saw better scalability, agility, and cost rationalization. Today, nearly 97% of HSBC transactions, including its credit and lending systems, are automated.
Capital One chose cloud computing to increase its speed and improve agility. Once it fully migrated to the cloud, the new technical capabilities allowed it to improve its operation efficiency alongside client experience. Today, it boasts streamlined processes, scalable resources, and high-speed digital transformation. After this success, Capital One decided to keep investing in digitalization and innovation.
JPMorgan Chase chose cloud computing to streamline its digital transformation. With cloud technology, it has succeeded in modernizing its infrastructure and developing new software faster. Today, JPMorgan Chase is partners with Amazon Web Services, Google Cloud, and Microsoft Azure, spending 2,000,000,000 USD developing its cloud-based data centers and migrating nearly 40% of its apps to the cloud.
Conclusion
Cloud migration in the banking sector offers flexibility, scalability, better security, and customer base growth. Big market players like Capital One, JPMorgan Chase, and HSBC have already invested in their transformation and continue to do so. If you are on your way to digitalization, cloud computing is a priority, not an option. Make your decision and talk to us about the possibilities. We’ll help you restructure your current processes and grow to new heights.