Last year, the financial services industry experienced disruption on an unprecedented scale. The pandemic has been devastating to lives and the economy, but it has also brought sweeping changes across the industry, forcing banks to adapt and adopt a more agile, customer-centric environment. Banks have made tremendous progress and most, if not all, recognize the urgency of digitizing processes and procedures. According to a recent study by McKinsey, COVID-19 has accelerated the digitization of customer interaction by an average of three years and the share of digital offers by seven years.
However, innovation is not instantaneous and a sense of “digital fatigue” is emerging as institutions pursue transformation strategies only to encounter setbacks and disappointments. In the short term, banks have been able to overlay digital functionality on legacy systems; however, this proves unsustainable. Anchored on outdated technological foundations, banks are now struggling to keep pace with rapidly changing customer demands and expectations.
The push to digital has made it very clear that for banks to compete effectively in a digital world and avoid being bogged down by legacy technologies, moving to the cloud is paramount. While the emerging wave of core service migrations is a consequence of these factors, there is a more powerful push behind the change. In short, it is a movement whose time has come.
Like so many other factors in financial services, cloud migration was happening before the pandemic, but like digital, it has now also been supercharged. In the early days of the cloud, if a financial institution wanted to take advantage of the flexibility of the cloud, it needed to expand its architecture, platforms, and services. For all but the largest banks, this was a prohibitively expensive undertaking. The public cloud has addressed these concerns through third-party providers who, in essence, have started offering shared cloud space, allowing financial institutions to migrate at a lower cost. Cloud providers have made significant investments in mature offerings, including advances in security, risk, regulation, technology, business models and operational best practices, earning the trust of all stakeholders , including regulators.
As banks face unprecedented competitive pressures, the cloud offers a powerful way to respond. It is now clear that migrating to the cloud is fundamental to digital transformation and banks are embracing the migration from mainframe to cloud. Accenture’s Banking Cloud Altimeter report indicates that 82% of North American banks have moved enterprise functions, such as finance and accounting software, to the cloud. While this is a bold move for an industry that was once cloud-averse, cloud adoption hasn’t stopped there.
Today, there is a visible appetite as institutions aim to realize the inherent agility of cloud platforms and the need to prepare operations for a fast-paced and ever-changing future. Improving the customer experience is a key driver of this transition, but perhaps more importantly, it delivers increased speed and agility, improves security and reliability, and enables banks to meet the market changes by introducing new features, capabilities, products and services. to help them grow and differentiate themselves in the market.
Agility and scalability
The cloud provides digital agility, allowing banks to adapt to consumer demands, seize new market opportunities, and respond to market threats and competition. Freed from legacy systems, banks that have migrated to the cloud can quickly launch innovative new offerings to engage existing account holders, as well as attract potential new customers.
By moving mainframe services to the cloud, banks can respond more agility to changing market forces by connecting applications tailored to their needs from multiple vendors to deliver best-in-class customer experiences. The cloud also allows financial institutions to achieve these goals with less risk and at a much faster pace. According to Accenture, 73% of banking executives who responded to their survey expect a rate of return of up to 15% and 76% expect to achieve it within 18 months.
Faster launch puts financial institutions on a faster, more direct path to profitability and cost savings, enabling faster return on investment in a robust and adaptable operating environment.
Scalability and elasticity have also proven to be key success factors for banks in the fintech era. Cloud-native infrastructures enable banks to innovate faster and more efficiently, while maintaining excellent customer service. The cloud has proven to be a key enabler for an international expansion strategy, providing institutions with access to new markets or segments that were previously inaccessible. market validation. With the cloud, infrastructure can be transformed immediately and, in turn, have a significant impact on time to market, cost reduction, or digital adoption. Cloud-native digital banking platforms provide institutions with leverage through flexibility, on-demand capacity, and speed.
It has become clear that digital transformation is an ongoing journey and not just a destination. As the world continues to rapidly transform, institutions cannot afford to be reactive, but rather must be proactive in preparing for the future. Over the past two years, the cloud has gradually transformed from an innovative concept to becoming the backbone and leading the way as banks and financial institutions continue to aim to reinvent and improve the customer experience.