By Daniel Meere, VP, BFS&I Consulting, UK&I, Cognizant
Consumer habits are changing. We now increasingly expect a seamless and agile experience from the brands and businesses we interact with. This is no different when it comes to financial services providers.
As such, financial institutions are searching for new ways they can optimise and transform the experience they offer to customers and many have been turning to cloud for its flexibility and agility.
Cloud is central to any digital transformation strategy, and this has been especially true throughout the pandemic. However, incumbent financial institutions that lack expertise in the technology domain should seek support from tech-savvy partners who can ensure it’s a seamless migration and that they are best positioned to leverage all of the benefits cloud has to offer.
Key steps for a successful cloud migration
Investment in cloud has increased rapidly during the pandemic, with the global financial cloud market expected to grow from $16.55 USD billion in 2018 to $46.03 billion USD by 2023. However, only a small number of transaction workloads have already fully migrated to cloud.
As consumer expectations of financial services are now driven by what they experience from other industries, where cloud’s high capacity is being leveraged to store vast amounts of data, financial institutions must cloudify more of their operations to be able to deliver against customer expectations.
Cloud offers many benefits from an operational level. For example, as data is stored on a cloud provider’s server, financial institutions no longer need as many people to manage these operations as before, which means they no longer need as much office space, so their operating model fundamentally changes, and this leads to a lot more remote delivery.
For financial institutions wanting to migrate operations and workloads to cloud, though, it is a question of hand holding. But how do you hold someone’s hand just to get them on that journey and make it a success? Well, there are three elements: technology, culture and people. While a longer-term ideal would be for multiple financial institutions to collaborate, this is an opportunity for the future. For a single financial institution to make its cloud transformation a success and to really adopt the cloud, it must start by:
- Creating a common architecture and a hybrid framework, which is not isolated to one public or private environment.
- Defining the blueprint and the transformation path, questioning what the current landscape looks like and how heterogeneous the technology is from an application perspective.
- Implementing an auditing process in case of eventualities.
Why having a tech-savvy partner on board is key
Technology like cloud is not where financial institutions’ expertise lies, despite it being key to solidifying their future by accelerating innovation to meet customer expectations. So, sourcing better-placed partners to collaborate with could help traditional financial players balance cost, agility and innovation, and deliver to market at a faster rate.
Incumbents should also be looking to new fintech players for inspiration. In many ways they already do, especially to learn from fintechs’ dynamic nature and the way in which they know instantly what the customer wants and how to respond to this. Some of that ability is because they have smaller customer bases, meaning they affect fewer customers to affect by change. Some of it is also just because they have a different mindset.
There is a real advantage to financial institutions in being able to absorb some of that culture and outsource some tasks that would take banks a long time and cost to deliver. Financial institutions talk about ‘cloud-first’ platforms, but just embarking on cloud is not going to provide innovation, flexibility or even a cost-benefit, unless there is a cultural change within the organisation.
However, many incumbents have been too quick to dismiss fintech firms and have been on a mission to either acquire or annihilate them. Today, there must be more focus on looking to partner with and learn from these kinds of tech-savvy companies.
Financial institutions must also understand that this may result in conflict as innovation cannot be outsourced, and financial institutions must understand relevance and the fact that fintechs are not only part of the financial ecosystem but are also in direct competition with them.
Changing a years-old mindset
As a vital part of any cloud migration journey by an incumbent financial institution, a mindset shift needs to occur – not just from a cultural perspective, but from an operational and business one too. Financial institutions need to realise that they’re going to be providing banking services to customers while someone else provides the cloud service to them.
On one hand, while you may have the advantage of scale, lower cost, flexibility and agility, this will result in a reduction in the control that is exerted over services which many aren’t used to as historically financial institutions have created and managed their own infrastructure. Ultimately, cloud infrastructure is forcing financial services executives to think about not owning their infrastructure, relinquishing an element of control, and adapt to working with a service provided by an outsider.
However, financial institutions will still be regulated for their use of cloud and regulators are continuously making the point that buying in services rather than owning them does not mean outsourcing the accountability. Banks can control the outcomes through their own performance and consequently create an environment where all constituent parts can work together to deliver the right outcome.