Will Cloud Enable the Next Decade of Digital Transformation in the Banking Industry?

April 08, 2020by Shaun Hurst

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The world’s largest organisations are shifting to cloud computing as they prepare for what’s next in digital transformation. But will banks adopt the same approach before the next generation of disruptors takes more of their market share?

Digital transformation has been the most significant business priority of the past ten years. Leaders in every industry, from automotive to asset management, have had to wrestle with the business impacts of disruptive technologies on their businesses. And they have fought hard to stay ahead of agile start-ups encroaching on their market share. But as the dust settles on the decade, legacy businesses that have focused heavily on their digital transformation stand in a strong position as their investments begin to pay off.

This is particularly true in the banking sector. Challenger banks have disrupted the status quo by bringing consumer-focused tech to the core of their business strategies, hoovering up roughly 14 percent of the market share in the process. But as legacy banks have responded by integrating the same mobile-first focus to their customer platforms, many argue that they have taken the wind out of the disruptors’ sails. The question now is whether legacy banks can keep innovating at the same pace as their challengers. And the answer lies in the next decade of digital transformation and the technology that will enable it: the public cloud.

New Applications and Services with Public Cloud

For the uninitiated; the public cloud is the storage and processing of a business’s data in off-premise servers. These are usually run and maintained by a third-party specialist, with Microsoft, Amazon and Google the clear industry leaders. Aside from being less costly than on-premise data storage, cloud solutions give companies the ability to rapidly modernize and scale their systems and accelerate time to market of innovative new products.

For banks, this means developing new applications, new online services to improve customer experience, integrating complex analytics and AI systems, and using APIs to derive business value from their data. A recently published report by Deloitte argues that the agile ability to adopt these new applications will give financial services companies a significant competitive advantage over those that cannot or will not migrate their systems to the cloud. This, they argue, is why the public cloud will become the dominant infrastructure model in the industry over the next 10 years and will be fundamental for banks to adopt if they want to remain relevant.

However, many banks still lack a comprehensive cloud strategy. In a survey carried out by Accenture, 23 percent of C-Suite executives working at global retail banks said they do not have a cloud strategy roadmap currently in place. An even higher percentage hasn’t put in place a model to transfer their existing data systems to cloud infrastructure—a crucial first step.

The issue for many in heavily regulated industries is fear. Especially for banks, the risks involved in migrating vast amounts of sensitive customer data and concerns about cloud security have caused inertia. But just as the inability to innovate consumer platforms opened the door for challenger banks to grab a significant chunk of the retail banking market, failing to implement a comprehensive cloud strategy will leave the door open for the next generation of disruptors.

Microsoft's Leadership in the Cloud Infrastructure Movement

But things are moving in the right direction. Led by Microsoft, cloud computing infrastructure is finally in a place that is moving the world’s largest organisations to make the transition. Most prominently, the US Pentagon awarded Microsoft a contract to move all their data systems to cloud infrastructures. Often, this ‘enterprise’ market is seen as the boring side of the tech industry, with people paying little attention to who is supplying the IT infrastructure for big companies and government bodies. But this marks a watershed moment for businesses as confidence in cloud systems rises and understanding increases the opportunity cost of missing out on the next generation of digital transformation.

The strength of this trend is shown in Microsoft’s immense growth since it put cloud at the core of its business strategy five years ago. The company’s value since Satya Nadella took over as CEO has increased five-fold. The company noted in its most recent financial results that the cloud now makes up a third of its business and is seeing annual growth of nearly 40 percent. And Microsoft Chief Financial Officer, Amy Hook, highlighted that a third of business software customers are now using some aspect of their cloud platform: Azure.

The Time for Digital Transformation is Now

So, as the world’s largest organisations wake up to the transformative capabilities of cloud infrastructure, we will continue to see a growing wave of companies transition their systems. For companies working in the banking industry, the possibilities here are immense. Better customer service, using the most advanced analytics and AI systems available to grow the business and strengthen risk posture, and the ability to innovate quickly and responsively. But if we combine that with the inertia that beset the industry over the past decade, we will continue to have the same result: more disruptors taking more market share. The time to plan for the next decade of digital transformation is now.

More on how to select a cloud-archiving platform, here

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Shaun Hurst
Archiving and Compliance Blog

Our Blog explores the news, trends and best practices in electronic recordkeeping. It’s about managing and getting value from your electronic communications data. It’s about satisfying legal and regulatory obligations. It’s all about turning compliance liability into business insight.

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