Just a decade or so ago, a bank needed to look like a fortress to earn the trust and business of its customers. Today, shifting a bank’s traditional fortress strengths to digital equivalents via the cloud creates a route for financial institutions to maintain their critical role in business and society.
The compressed digitization of every facet of finance, spurred further by the COVID-19 pandemic, has created a culture of deep, disciplined effectiveness that makes lesser alternatives inconceivable. Customers expect legacy banking institutions to continue delivering security and stability, while providing lower cost, faster, hyper-personalized financial products and services that compete with the myriad of popular fintech apps.
To deliver on these escalating expectations, financial service providers must prioritize a digital-first environment, and effectively leveraging cloud technology is transformational in that digital journey. That’s because nothing short of the modern cloud allows financial service providers to rapidly innovate to create a network effect across security, data, processes, content, experience and more to ensure they remain relevant in a rapidly changing digital age.
Infosys surveyed more than 2,500 business and IT executives for Infosys Cloud Radar 2021 to gain a better understanding of how companies can use cloud to improve performance. Some of the insights derived from the study with relevance to financial services include:
Growth and profitability
For financial services, revenue and expansion momentum correlates to superior enterprise cloud adoption and orchestration. The study found that companies adopting cloud more completely are uncovering new revenue sources and growing profits faster by moving business applications to the cloud more productively, managing cloud spend more effectively and attaining better results with data and artificial intelligence (AI). The study found that cloud could add up to $150 billion to annual profits in the financial services and insurance industries.
60% threshold for competitive advantage
To differentiate in the market, financial service providers must find ways to not only scale and store enormous amounts of data, but also mine the data for insights. AI plays a key role in capturing, processing and analyzing customer information in the sector. With scalable cloud services, made possible when these providers move heavily into the cloud, they are able to do just that. Along with capability gains, speed of response is also accelerated. These advances are significant enough to create competitive advantage only when the financial services business shifts 60% or more of its systems to the cloud. When cloud adoption is slower, the gains are incremental and the benefits easily erode over time.
Only a fraction of financial bigwigs are playing
Major financial services firms may see the benefits of cloud migration, but most are hesitant to move all their IT and business systems. While trust in storing critical information on the cloud continues to grow, they remain concerned about the cloud’s overall security. Their No. 2 concern is the complexity of the technology landscape. Legacy infrastructure has been a problem for them for years, with the industry continuing to rely on software programmed in outdated languages. Lastly, rounding out the top concerns are those that relate to regulation and compliance.
Cloud move needs thought and coordination
The journey begins with exploring how at least some legacy assets can be monetized to give the transformation a funding head start. Simultaneously, the workloads that are best suited for migration to the cloud need to be determined. Unplanned lift and shift of on-premise workloads to the cloud is often the source of significant woes down the line. The services, solutions and platforms that can accelerate transformation come next. The risk of siloed services and data banks, inadequate regulatory compliance, burgeoning costs and value leakage are only the beginning, if potential ‘cloud chaos’ is left to grow unchecked.
The cloud is indispensable to digital transformation for financial services organizations. Yet the approach to cloud that promises the most value for businesses is both public and private — a hybrid approach aimed at providing security comfort, solving agility challenges and improving scale. A well-thought-out strategy to exploit this approach is what it will take to empower financial services enterprises to build a fortress of trust to position them for market leadership.
Increasing competition from fintechs, neolenders, and tech giants is compelling banks and credit unions to seek out innovative business models to expand and diversify their sources of revenue. By embracing strategies such as distributing financial products through retailer websites and points of sale or creating value-added bundles that include both financial and non-financial partner products, financial institutions have the potential to achieve up to 20% increases in revenue.
Join us for this complimentary BAI webinar to hear FintechOS’s Mariana Henriques speak with Matt McCombs, President and CEO of Vibrant Credit Union, a 50,000-member financial institution serving Iowa, Illinois and Indiana, about how they reinvented their direct origination business.