Sorry Mick Jagger, but we think it’s high time for bankers to get on the cloud, and in a big way. An “all in” approach to investing in flexible cloud infrastructure, as opposed to piecemeal migration, may be needed to reap the full benefits. This appears to be a key message for legacy banking institutions if they want to stay in front of widespread changes that are reshaping consumers’ use of financial services.
Slow moving banks that rely on legacy core systems are at risk of losing touch with consumers. However, those institutions nimble enough and willing to invest in flexible cloud infrastructure may be positioned to benefit handsomely, not only in terms of capturing new business, but also from the promise of lower long-term operating costs.
Already, early FinTech movers have gained a foothold building businesses by evading the most capital-intensive and regulated aspects of financial services. Some innovators have developed intuitive front-end application tools that have created new ways to capture new customers and revenues. These early movers have wisely outsourced the more capital intensive functions to third-parties or replaced high-cost manual functions with lower-cost automation.
No doubt about it, the gauntlet has been thrown and banks need to respond. Perhaps the best way forward is to migrate core bank processes to the public cloud. Eventually, it is likely that all financial services firms will move to a public cloud infrastructure, the timing of which will be influenced heavily by consumer preferences. Already many traditional banks are moving consumer-facing and engagement systems to the cloud. However, if financial services firms limit innovation to these front-end consumer engagement applications, they will likely fall short.
The full promise of digital banking must involve core operations, which typically reside on legacy systems. However, if banks redesign the (FinTech) front end but ignore the core (legacy) back end, there will be a mismatch in their ability to satisfy elevated consumer expectations.
Many traditional banks are moving consumer-facing and engagement systems to the cloud. However, if financial services firms limit innovation to these front-end consumer engagement applications, they will likely fall short.
Of course this migration will not be easy and ample challenges remain. These include: regulatory hurdles on public versus private infrastructures, potential security shortcomings of a hosted environment for core processes, and the continued development and adoption of open industry standards. Nevertheless, we believe migrating to a public cloud will be critical to innovating and appeasing consumer expectations. Plus, it’s the only way to reap the full benefits of infinite computing and storage scalability.
Aggressive FinTech companies may have been first to market; however, incumbents still have ample room to rediscover their economies of scale. Public cloud infrastructure offer banks opportunities to cut costs, reallocate spend toward innovation, forge partnerships with cloud-based providers, increase system efficiencies, and position themselves to innovate and compete in an ever-changing regulatory landscape.
Financial Services Advisory Leader, PwC US