Cloud-based banking infrastructure: Not “if” but “how”

Financial institutions are not total strangers to cloud technology due to the opportunity it presents  to synchronize the enterprise, break down operational and data silos, and apply advanced analytics for integrated insights. In today’s environment, the question financial institutions should be asking about the cloud isn’t whether to use it, but how to use it.

For core functions like transaction and payments processing, where security and compliance are especially critical, banks need a proactive cloud strategy based on their needs. A large bank with a national footprint and a small community credit union can both benefit from leveraging cloud technology, but their approaches to implementing it may be vastly different.

Thanks to the cloud, the days when incorporating new technology took months or years are gone. The cloud enables agility and innovation in many ways. For one, its centralized systems and tools help financial services providers simplify the process of implementing new technology. The cloud also provides access to flexible and cost-effective resources and improves efficiency by eliminating manual tasks like software installations and patches.

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By minimizing time spent on development, provisioning, testing and implementation, cloud-based infrastructure enables banks to focus staff on core competencies. And the cloud introduces banks to a more open ecosystem, where they can access technology they might not have the resources to build and maintain in-house, as well as explore partnership opportunities to build new products, services or functionalities.

Here are four steps for financial services providers to follow to develop an effective cloud strategy.

Articulate a clear purpose and rank your goals: The first step in designing and implementing a cloud strategy is to define the primary reason the bank or credit union is looking to leverage cloud capability. Whether it be leapfrogging legacy technology, accelerating innovation, driving efficiency or scaling for greater capacity, it’s crucial to identify long-term goals.

Choose the right deployment model: Given the scale and sensitive nature of data that financial institutions possess, it is crucial to understand cloud deployment and determine where data and systems will live.

  • Public cloud allows for flexibility, reliability, scalability and cost efficiency, but it is less secure and lacks customization.
  • Private cloud is highly secure and control-oriented, but lacks scalability and is costly.
  • Hybrid cloud is flexible, secure, scalable and cost effective, but may have complex networking issues.
  • Community cloud has improved security, privacy and reliability, but it can be costly.

Given the range of choices, it’s important that banks articulate a clear purpose to decide which model fits best.

Determine scope and budget: Cloud-based services are implemented and priced predominantly based on utilization. To determine the right fit, banks should consider metrics such as transaction volume and processing capacity in determining which model is appropriate. Other factors to consider include future scalability projections and geographic footprint, particularly where there is a need to do business or operate data centers in different countries.

Choose partners wisely: With regulations evolving continuously, banks should consider partnering with organizations that understand and have experience helping clients navigate the complexities. Cloud technology meets the highest security standards and can help organizations meet industry-specific regulatory requirements. Financial institutions no longer have to rely on physical servers with limited storage.

Every financial institution’s needs are different, and cloud technology helps level the playing field between small and large banks because it can be configured and optimized for organizations of all sizes. With cloud, any financial institution can access capabilities that may be too costly in a traditional licensing arrangement.

In addition, the flexible nature of cloud services offers banks the opportunity to “try before they buy,” introduce new features for different periods of time across their branch networks, and make changes accordingly based on their customers’ preferences. Cloud-based managed services can also enable banks to delegate ATM fleet management to technology providers, shifting responsibility for operations maintenance, routine system updates, compliance and security. This provides a major value-add and cost savings to financial institutions with limited resources.

As the financial services industry’s digital transformation continues, the cloud is an increasingly important tool for banks. From making innovation more efficient and accessible, to delivering against evolving consumer expectations, cloud-based services allow banks of all shapes and sizes to adapt and thrive.

Manish Choudhary is senior vice president, software, at Diebold Nixdorf.