Cloud Computing has emerged as a game-changer for banks and financial services (FS) Institutions. Traditional banking systems often relied on on-premises infrastructure, which posed challenges in terms of scalability, maintenance costs, and operational efficiency. However, with the advent of cloud technology, banks and financial institutions are now able to overcome these limitations.
By 2025, Gartner estimates that over 95% of new digital workloads will be deployed on cloud-native platforms, up from 30% in 2021.
Recent studies and reports, such as the IDRBT Study, emphasize the benefits of adopting cloud technology in the banking sector:
Cloud services, including IaaS, PaaS, and SaaS, provide seamless scalability to manage rapid growth without business disruptions, a clear advantage over conventional methods. Through dynamic cloud environments, computing capacity can be optimized by up to 30%.
Beyond innovation, cloud adoption streamlines financial strategies. Shifting from Capital Expenditure (CAPEX) to Operating Expenses (OPEX) reduces the need for hefty investments in hardware and software. Pay-per-use pricing models further drive cost efficiencies, resulting in substantial Total Cost of Ownership (TCO) reductions of 50% to 75%. Cloud-based operations also provide banks with insights into their customers, which fosters predictive selling and boosts business agility.
A Global Perspective on Cloud
- Rising Cloud Adoption in Asia Pacific
According to a report by BCG and Cisco, There is a strong shift towards cloud technologies in Asia Pacific. Overall cloud spending is expected to reach USD 200 billion in the region by 2024, with investment into cloud growing at a compound annual growth rate (CAGR) of over 20% since 2018.India, Indonesia and Malaysia are key markets where cloud spend is expected to grow at a much faster rate, with a CAGR of 25%; this is quicker than the forecast in developed economies such as ANZ and Singapore. This will lead the pack in terms of growth of overall IT spend and investment into public and private cloud services.
- Accelerated Growth Driven By Cloud Adoption
Fortune 500 companies adopting the cloud could realize more than $1 trillion in value by 2030, according to McKinsey’s analysis.The cloud helps businesses speed up design, build, ramp-up and shortening time to market with a strong DevOps in place. The global cloud infrastructure also lets companies innovate and expand its product offerings instantaneously to target new markets.
- Surging Cloud Adoption in the BFSI Market
According to research, The global public cloud in BFSI market size was estimated at USD 56.15 billion in 2022 and it is expected to hit around USD 230.15 billion by 2032, growing at a CAGR of 15.2% during the forecast period 2023 to 2032.Source Link
Best-practices in cloud deployments for banks and large insurance groups:
- Shared Service Model:
Outsourcing non-core processes like customer onboarding and outbound marketing can reduce costs per transaction and customer acquisition expenses, which are important indicators of IT spending and efficiency in banks and financial institutions. Cloud computing enables these non-core processes to be outsourced to vendors who operate on shared services models, ensuring data privacy compliance.
- Leveraging Artificial Intelligence and Machine Learning:
Banks can leverage AI and ML algorithms to analyze vast amounts of data, detect patterns, and derive actionable insights. This enables them to enhance risk assessment, fraud detection, customer profiling, and personalized recommendation systems. AI-powered chatbots can provide customers with instant answers to simple queries, freeing up agent time for more complex issues.
- Pay-per-cloud delivery models
As emphasized in Capgemini’s report, banks should consider signing outsourcing contracts that follow a pay-per-use model in the cloud. When implementing cloud projects, it’s important for banks to have service level agreements (SLAs) that connect billing with reliable system performance.
While the benefits of cloud adoption are quite evident, banks must remain vigilant when it comes to security and compliance. Safeguarding customer data and complying with industry regulations has become a necessity. Banks can work closely with cloud service providers to implement robust security measures and ensure data privacy.