Core Banking on Cloud - A Passing Fad or the Future of Core Banking Transformation?
In short, cloud computing is an enabler for the next wave of bank transformation projects. It has become imperative for banks today to adapt and innovate at a rapid pace to cater to the ever-changing customer demands. Reshaping and reinventing core operations will be a step forward towards becoming a more customer-centric and efficient organization—a need of the hour for most banks today. Cloud offers banks the flexibility to have minimal capital investment, variable pricing options such as pay per use for the customer, quick product deployment and lower operating costs.
Some large banks are already leveraging the cloud technology while others wait and tread cautiously. Small banks on the cloud have so far largely been in the SME or microfinance space. This trend looks set to change with banks from all tiers exploring various opportunities provided by the cloud for core business functions
While analysts have always provided a cautionary note on the role cloud has to play in banking, we see the momentum upbeat. Nearly 25% of the financial services institutions are already on cloud and nearly 73% of banks expressed their interest in cloud computing in a recent survey conducted by Banks Systems & Technology.
How will this influence banking in the future?
Distributed IT will be the new industry norm in days to come with data being dispersed across many locations. Banks will consider sourcing business processes as a service from third-party service providers. This will also lead to confusion regarding the ownership of data as well. But that can be an altogether topic for discussion.
Efficient use of IT resources will enable faster time to market, leverage on social media and other online channels such as the mobile and internet. Banks will benefit from a large amount of customer data derived from various channels. This data is utilized further to serve the customer better in terms of speedy problem resolution, better product bundling and enriched product propositions through mobile commerce. It is foreseen to be an enabler of change in the way customers interact with the bank.
The trend clearly is towards a more digitized bank which will help banks meet their goals of reducing operational costs, expanding customer base and market share, while also improving customer relations.
Deployment modes available to banks
Cloud deployments are categorized into public, private and hybrid clouds. The most preferred mode of cloud deployment for financial services is the private cloud followed by the hybrid cloud. This is purely from the point of securing and controlling key bank data. According to a recent analyst survey the banking industry is aggressively adopting private clouds. Banks are already using cloud computing for email and other business support functions (such as service support, collaboration, and file sharing and web conferencing).
For banks, one of the best ways is to opt for hybrid clouds as they bring together the best of both public and private clouds. For example, a bank may keep all their sensitive customer data in a secure private cloud while having the applications run on a public cloud. Mixing and matching the elements of public and private clouds will help the banks create customized solutions that will meet both their short and long-term goals.
Maximizing Benefits – Overcoming privacy and data security issues
Customer data is of utmost importance to a bank and it cannot be compromised. The innumerable benefits of cloud computing are sometimes overshadowed when discussing data privacy, security, brand reputation, business continuity planning etc. Concerns over security are further compounded with no clear regulatory guidelines on the use of cloud technology in banking.
But this area is developing and there are organizations such as the Cloud Security Alliance, a not-for-profit organization that is working towards addressing cloud security issues and to develop best practices for the deployment of cloud-based services. Also financial regulatory agencies have indicated that regulations applying to IT outsourcing in general are applicable to cloud computing activities as well. Banks need to factor into account core elements before undertaking a cloud exercise, such as – Compliance with risk-based policies that govern IT outsourcing, stringent evaluation of proposals for service provider selection, outline contracts with detailed SLA’s, pricing etc and lastly monitoring the performance of the service provider during the lift of the contract.
To sum it up, cloud technology definitely has the potential to offer significant economies of scale. It frees up bank resources to makes it accessible for a wide array of services. The benefits certainly outweigh the risks and banks can no longer be in a denial state.