Looks like the technological disruption in the banking services is just around the corner. The recent massive Cloud adoption is shaking the entire industry from its foundations due to the improvement of the customer service and experience. Also, and as we know, the news capabilities of the IT related services such as AI, Blockchain, IoT and so on can be leveraged entirely as Cloud native based microservices, but that includes the possibility for migrations from legacy systems. So, this very nice relationship could last decades if we consider that we currently are living just the beginning of the massive adoption of Cloud and its variants according to the different business models.
According to a document released in September 2019 by Gartner called “Cloud Heat Map for Banking and Investment Services, 2019”, around 195 deals among banks and Cloud providers were analyzed from 2014 to 2018. The analysis shows very remarkable trends in the IT industry related to the Cloud adoption for banking services. For example, the Front Office in the banking services (which implies the micro-services of Sales and Servicing, CRM and the Channels) takes around the 32% of the Cloud adoption, the Middle Office (Risk, Security, and Compliance) on the other hand takes the 13%, while the Back Office (Core banking systems, Payment processing, Back-Office collaboration, and AM and VW systems) represent the 31%. Finally, the Cloud adoption for the Infrastructure (Development and testing, Enterprise content management, Infrastructure data center, ERP and Enterprise Data Management) represents 24%.
Under the same analysis made by Gartner and summarizing the Cloud for banking services adoption in recent years, and using the Compound Annual Growth Rate (CAGR), the total increase in the main five functional areas is as follows:
1. Infrastructure 211%,
2. Risk, security and Compliance 148%,
3. Payment processing 126%,
4. Core banking systems 97%
5. Channels 93%.
The disruption in the banking services by the massive adoption of Cloud, may it won´t be overnight, but from my point of view, the transition will be soft and slow. What is true, is that the new banking services Cloud-enabled will be smarter, more transparent, more efficient and even cheaper for the final consumer, thus in the short and medium terms, most of the banks (if they don´t want to lose the race) will put their services totally in the Cloud to offer at the highest level to their clients, corporate and commercial, their services.
Additionally, other trends found in the analysis shows something very interesting about the Cloud adoption in the banking services related to the models and the development of business. As I noted in the lines up, the Private Cloud is the most adopted by banks, with the singularity that most of the times are hosted by third parties at external data centers. Also, this business model is related remarkably to midsize banks.
The Public Cloud, despite has lifted some concerns about the security and the lack of privacy also has acquired grown in the adoption due to the hosting benefits as the AI Cloud-based capabilities and the easiness of management.
By last, the Hybrid Cloud though is still popular among the analytics and machine learning services for the banking services, recently has shown a king of stagnation in the adoption. The model of the Hybrid Cloud implementations tends to be more popular in the “treasury and trade finance business unit in the 2019” not in the banking services by itself.
Possibly the general public, and even the final consumer is not aware of the massive adoption of the banks and their bet for the Cloud-enabled services, but what is true is that the market is experiencing a big improvement in the quality and security of the banking and other financial services. Every day big players of the banking environment are making efforts to build new capabilities on the Cloud to attract wishing customers for the novelties, also, the adoption will mean in the medium term the reduction of some operative costs associated with the maintaining of the legacy systems. At the end of the day, the romance among the banks and the IT and Cloud providers will be dictated by the preference of the consumer for the smartest, the fastest, the most reliable and securest banking applications.