Home / Banking Strategies / The cloud as a top tech priority for banks in 2023

The cloud as a top tech priority for banks in 2023

No longer can banks rely on brand loyalty to retain customers and expand their consumption of products and services.

Jan 30, 2023 / Technology
Businessman using tablet analyzing sales data

Bank leaders face tough decisions about how to allocate limited resources, both financial and human. Despite the associated cost pressures, banks will need to prioritize strengthening their technology to enhance, optimize and modernize their operations to ensure success in 2023 and beyond. No longer can banks rely on brand loyalty to retain customers and expand their consumption of products and services.

According to BAI research for 2023, around 55% of respondents would switch institutions for better digital capabilities, a significant increase from the previous year. Nearly 75% of Gen Z respondents would consider changing banks for a better digital offering, up 13% compared to 2022. Offering an improved digital experience is integral to retaining and attracting customers. If younger customers are any indication, banks can expect brand loyalty to continue to erode as consumers chase the best technology.

A Gallup poll found that just 45% of satisfied consumers would consider their institution for an additional product or service. That number increases to 83% when customers are both satisfied and engaged. Alternatively, poor satisfaction and engagement is a death knell: Just 19% percent of customers who are unsatisfied and feel unengaged would return to their financial provider for a new product.

As banks strive to improve customer engagement and customer satisfaction in 2023, many are looking to the cloud to accelerate those efforts.

Once skeptical of cloud computing’s power, financial institutions are now actively investing in the technology to expedite digital transformation. For example, the London Stock Exchange Group announced a significant partnership with Microsoft to build its data infrastructure using Microsoft Cloud.

According to an Arizent survey, cloud computing was on the list of the top five 2023 spending priorities for more than 40% of U.S. bank executives, and eight out of 10 respondents expect to have at least 20% of their data in the cloud this year. Moving to the cloud makes it easier to seamlessly access, consume, analyze, utilize and scale data in real time.

Tech giants are investing in cloud technologies and startups, which will likely accelerate new innovations and the adoption of cloud services across industries. According to a Bank of America report, Google has invested $120 billion in artificial intelligence and cloud computing since 2016.

Adoption of cloud-first strategies is also creating a cloud marketplace for new platforms and applications, and some of those capabilities and technology solutions aren’t even available in on-premises versions. The race to develop the most cutting-edge cloud technologies will quicken as cloud adoption becomes a core goal of financial institutions.

Cloud services don’t eliminate the value of a personalized approach for each customer, but it does enable banking organizations to personalize their offerings at scale. And partnering with a single technology provider can help mitigate managing multiple vendors, often resulting in cost savings.

In 2023, banks will continue to pursue growth-by-acquisition strategies, choosing to acquire tech or collaborate rather than build the technology in house. Collaboration between financial institutions and third-party solution providers offers a cost-effective way to innovate faster and on a larger scale.

A recent survey from Economist Impact found that about half of the banks surveyed have partnered with fintech startups over the last three years. Increased competition from digital alternatives, including non-financial firms like technology companies, will continue to push banks to forge partnerships.

For banks pursuing a growth-by-acquisition strategy, the volatile market could create opportunities. As the IPO market dries up, more founders and venture capital firms will face greater funding obstacles this year. The specter of rising interest rates makes a quick normalization of the IPO market unlikely. In 2022, IPO values had their worst year since the beginning of the financial crisis, falling 68% percent compared to 2021. This could leave valuable startups, or startups with valuable technologies, undervalued and primed for acquisition.

As financial institutions craft, recalibrate and execute their business plans in 2023, doubling down on digital transformation will help them compete with both financial disruptors and traditional rivals. We’ll likely see them strengthening their technology infrastructures and digital experience, embracing the cloud, and entertaining plays for acquisitions at an unprecedented level in 2023.

Sanjay Sharma is global head of private banking and wealth management at SEI.