Cloud computing is to digital banking as music streaming is to your MP3 collection. At first it was novel, but now it’s becoming more and more required to remain relevant. McKinsey Digital foresees more than $1 trillion in run-rate EBITDA (earnings before interest, taxes, depreciation and amortization) across Fortune 500 companies in 2030 from rejuvenating existing operations, innovating in business processes and pioneering new businesses. Despite rapid growth in spending (the top three cloud-service providers reached $100 billion in 2020 revenue), cloud infrastructure still represents a small fraction of the $2.4 trillion global market for enterprise IT services.
What Is Cloud Banking?
Often referred to as “the cloud,” cloud computing is the delivery of computing services on-demand, over the internet. This includes data storage, software applications and even processing power. Before the cloud, computing power was a function of what a financial institution could afford. That is no longer the case with cloud computing because it gives users everywhere instant access to the provider’s computing power and storage.
Banks and credit unions can use cloud computing to enhance or outright replace anything their current data center provides. Smaller organizations can leverage this to avoid up-front costs and the complexity of owning and operating whole IT infrastructures.
Banks and credit unions have been slower to adopt cloud computing, despite the massive growth potential. This is largely because of the difficulty and perceived dependencies on their legacy on-site applications. However, early adopters like Capital One (which started its systems migration to the Amazon Web Services cloud in 2012 and closed the last of its eight on-premises data centers in November 2020) are attracting attention and changing some long-held attitudes.
“We are truly all in on the cloud, and AWS has been instrumental in enabling us to take full advantage of the benefits of being in the cloud,” says Chris Nims, senior vice president of cloud and productivity engineering at Capital One. “Going all in on the cloud has enabled both instant provisioning of infrastructure and rapid innovation. We are able to manage data at a much larger scale and unlock the power of machine learning to deliver enhanced customer experiences.”
Cloud Computing’s Impact on Banking
According to a 2020 IBM survey on banking on open hybrid multicloud, “While 91% of financial institutions are actively using cloud services today (or plan to in the next nine months), only 9% of mission-critical regulated banking workloads have shifted to a public cloud environment.” Legacy banking systems are largely outdated and inflexible, seemingly making it costly for many banks and credit unions to deploy new solutions or protect against advanced security risks.
More than ever, leading banks and credit unions need to find flexible, scalable cloud-computing solutions. The worldwide pandemic has upended how financial institutions do business, driven by user demands. The COVID-19 crisis put significant pressure on the financial industry to become more tech-enabled. Ever-growing user demand for digital banking solutions continues to accelerate the financial industry’s digital transformation. For your bank or credit union, cloud computing could mean more efficient processes or data-intensive applications. For your end users, it could mean faster transaction times and data-driven personalized service.
Cloud Computing’s Benefits
“Many banking CEOs today believe if they had been more in the public cloud, the last few months would have been a lot easier,” according to a report by Accenture. The pandemic provided an unexpected opportunity to contrast the performance of cloud-based tech versus traditional, legacy systems:
- 60% of Accenture’s top 20 banking clients have a multi-cloud strategy
- 10% to 20% cut in operational costs
- 30% to 50% shorter time to market
- 40% to 50% quicker provisioning speed
Cloud-based infrastructures can help banks and credit unions react faster to marketplace changes. Many times, key user-data insights can only be unlocked with advanced analytics. Real-time data analysis can provide the foundation for a level of personalization and stronger engagement across all channels that is not normally possible with legacy infrastructure.
“About 10 years from now, the goal is for all of Wells Fargo’s workloads to be on public clouds,” says Saul Van Beurden, Wells Fargo’s head of technology. “It’s a big, hairy goal” that acknowledges the cloud trends occurring in the banking industry, he says. “The advantages of the cloud are speed, scalability and resiliency.” Recently, Wells Fargo struggled with outages that underscored technology failures from antiquated systems. “The cloud initiative will allow the company’s technology team to build and deploy applications faster, which will benefit the bank’s customers,” says Van Beurden, who joined the company in 2019 and was previously the chief information officer of consumer and community banking at JPMorgan Chase & Co.
“Wells Fargo’s effort to modernize its digital infrastructure also includes a plan to decommission its own data centers and move some of its applications to undisclosed third-party data centers,” according to Van Beurden.
Embracing cloud computing is essential to remaining competitive in an increasingly digital world. It allows your bank or credit union to achieve a more agile and networked ecosystem.
Cloud Banking as a Differentiator and Advantage
The benefits of a cloud-native banking infrastructure are clear. However, not all providers are equal. The technology is now available to help smaller financial institutions compete. Waiting to leverage these new solutions is not a winning strategy. Lumin Digital’s focus on modern and stable architecture, convenience and speed has earned the company a 100% client referral rate. Lumin’s innovative “zero-downtime upgrade” model enables weekly iterations, updates and innovations without having to bring the system down — a key differentiator in the market. This enables the platform to be continuously updated with no scheduled maintenance windows or interruptions for members, providing an optimized banking experience that works and feels like elite apps. “With the accelerated shift to digital and the evolving preferences of consumers, we are excited to further our investment in Lumin Digital to meet demand and enable continued growth,” says Chuck Fagan, president and CEO of PSCU.
The financial-industry leaders of the future will depend on vast amounts of data for decision-making, augment workers with technology and use agile workforce models. Cloud computing will likely play a pivotal role in interpreting massive amounts of data. As a result, cloud-computing adopters benefit from higher market valuations, reduced operational costs and the agility to thrive amid uncertainty. In a super-connected digital world, your bank or credit union would be prudent to go where your end users are: on their mobile phones, computers and now the cloud. They’re more and more dependent on digital solutions as opposed to in-person branches. They want their banks and credit unions to reflect that new reality.
Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture-capital firm specializing in world-changing and status-quo-defying technologies and people.
Sources
McKinsey Digital – Cloud’s trillion-dollar prize is up for grabs
McKinsey Digital – The Cloud Transformation Engine
Amazon Web Services – Capital One Completes Migration from Data Centers to AWS, Becomes First US Bank to Announce Going All In on the Cloud
IBM – Banking on open hybrid multicloud
Accenture – The cloud imperative for the banking industry
WSJ – Wells Fargo Embraces Multicloud With Microsoft, Google Deals
WSJ – ‘We Need to Be a Technology Company.’ Wells Fargo Struggles With Aging Systems.
