Parijat Banerjee is Global Business Head for the Banking, Financial Services, and Insurance (BFSI) sector at LatentView Analytics.
Banks have always been in a tricky spot when it comes to innovation—balancing modernity and consumer expectations with compliance and security. The past few decades of rapid technological change have been dizzying for financial institutions, but banks have made notable progress in adopting solutions to improve their online and mobile services. However, it has been a mixed bag, with other digital transformations being considerably slower, especially the migration to the cloud.
Many banks have found it difficult (and expensive) to give up their legacy applications in favor of cloud service providers (CSPs), with very real concerns about information security, customer-sensitive data and the need to build cloud-appropriate risk management frameworks. The reputational and regulatory exposure presented by migrating large amounts of sensitive data is daunting, and the financial services industry has a low tolerance for failure. But risk-averse attitudes are evolving, and quickly.
Eye In The Sky
A recent survey from Accenture of 150 executives at large banks found that more than 8 out of 10 executives surveyed who are already planning to or in the process of migrating functions to the cloud intend to move the majority of their mainframe workloads to the cloud. Within this group, nearly a quarter said they plan to move at least three-fourths of their mainframe workloads to the cloud, and nearly north of 80% are determined to meet their targets in the next two to five years. Regulators have also gotten on board, noting the enhanced transparency, monitoring tools and security features of cloud computing.
Banks know they need to keep pace with the digital features of their less-restricted consumer colleagues and deliver faster, more optimal customer experiences across their digital properties. The cloud enables them to embrace the latest tech without spending time, money and energy creating the infrastructure. This realization has accelerated cloud adoption. Wells Fargo is planning a move to data centers over several years. Morgan Stanley and Bank of America are making similar plans, with Microsoft, Google and internal builds assisting with the process. Goldman Sachs announced its partnership with Amazon Web Services for its own migration.
But banks are still transitioning from something they know well (their own in-house data centers) to something entirely new, and pitfalls abound. As the great migration to the cloud continues, here are four important issues banks should consider.
1. Data Organization
According to McKinsey, “Financial institutions have always had to convert information into insights, but today’s data requirements are massive. Not only do banks gather data in greater volumes, but it comes from multiple sources and in multiple formats.” Migrations can’t happen without a clear execution plan with buy-in from all key stakeholders. This is especially important for banks, who are notorious for their shared services that can make unraveling data more complex.
Enterprise-wide cloud migrations are multilayered, involving more than just “transferring” data. Banks must implement automated processes and digital platforms that will not only allow for expeditious data collection but are primarily focused on data organization and analysis.
2. Data Security
Protecting customers’ data and sensitive banking information is critical. By placing valuable information within the cloud via online or virtual platforms, businesses run a greater risk of security infringements or threats. In order to offer customers an online banking experience, it is essential that strict security measures are in place and regulated.
But the reward may outweigh the risk. Once up and running, the cloud offers banks tremendous security advantages. Consumer banks can take advantage by developing cloud-based tools that can help introduce new features in apps, assist in detecting fraud and even use machine learning to assist in detecting money laundering.
Don Anderson, CIO at the Federal Reserve Bank of Boston, even thinks that ignoring the cloud may “introduce new security vulnerabilities,” as on-premises vendors discontinue support for their products. So, for those banks still on the fence about making the move to the cloud, it appears that the ice cream is worth the headache.
3. Customer Experience
The cloud experience of a financial institution is only beneficial if customers can easily access and intuitively operate it. When implementing virtual platforms, it’s important to ensure that these platforms and technologies are comprehensive and that customers can easily use them to access their data, perform transactions or manage accounts.
One of the advantages of virtual platforms is that customers can interact with an institution from anywhere at any time, increasing their brand loyalty. However, if they struggle to use cloud services to perform the actions they desire (or if the system doesn’t support quick and feasible transactions), it might do more harm than good. Remember—migrating to the cloud is not a “set it and forget it” endeavor, and it requires constant vigilance and maintenance to ensure a seamless customer experience.
4. Legacy Goodbye
In addition to security, ditching the systems that you’ve relied upon for decades (and trained your employees how to operate) is a cold shower. For an effective migration, banks first need a full understanding of their current tech architecture. As mentioned, banks tend to have clustered, coupled systems, and taking anything offline may have disastrous consequences elsewhere. Put another way, you wouldn’t want a surgeon to operate without taking an X-ray first.
Banks should consider implementing innovative systems and technologies in order to fully explore the possibilities of moving toward the cloud. By releasing the hold that banks have on legacy systems, financial institutions can focus on innovative technologies. But overseeing that innovation will require talent, and banks have often competed with fintech and other digital competitors for cloud-experienced engineers. The good news is that these technologies are becoming more commonplace, and there’s a constantly growing number of people with the proper experience and training.
As digital transformation accelerates and the realities of our post-pandemic online world continue to unfold, financial institutions must be prepared to evolve their methods of working, just like the rest of us. By shedding the burden of legacy systems now, banks will build resiliency and find themselves better equipped to navigate and even more confidently participate in the changing landscape of our digitally connected ecosystem.