July 4, 2022

How can cloud computing save banks billions?

Traditional Banks have struggled with increased pressures to cut costs, save money, and adapt to changing consumer trends in the new digital landscape.

It is projected that banks globally will spend US$309 billion on IT cost in 2022. Banks can make swift and significant savings by moving large chunks of that spending to cloud computing.

The Governor of the Bank of England estimates that banks can cut costs by 30 to 50% by moving to the cloud. Similarly, in an Economist Intelligence Unit (EIU) report, costs were a driver for cloud adoption by 43% of bank respondents globally and 21% said improving customer services was the reason for taking up the cloud.

Cloud computing is not new hype, trend or buzzword. However, since Salesforce (back in 1999), the cloud infrastructure and SaaS model have matured, disrupted, and allowed millions of businesses to access, store, process, and analyse data cheaply and efficiently. As a result, we rely on the cloud daily, without realising it – from digital payments, communication, storage & backups, navigation, streaming, video conferencing and more.

Cloud computing is a way of storing data and running apps over the internet. This means that banks and their customers can access their data from any device, anywhere. This is cheaper and more efficient than traditional methods. So it’s no surprise they realise the benefits of cloud computing and embrace it.

According to a research report by IDC, the global banking sector could save up to $20 billion per year by moving to cloud computing as it is very cost-effective than legacy methods. The TCO (Total Cost of Ownership) for cloud computing is around 50% lower than conventional IT systems.

Banks, especially in emerging markets and developing economies such as Latin America, Africa, and the Asia Pacific, can reap faster and significant savings as they don’t have the challenges of protecting legacy investments, expensive and lengthy migrations of adopting their core banking applications for the cloud.

The typical cost banks incur:

  • Capex: This is infrastructure-related costs such as hardware, routers, and data centres. Banks can save money using hybrid (public and private clouds for compliance requirements). This ensures existing Capex investments are protected via private cloud and the economy of scale offered by global cloud providers such as Google Cloud, Amazon (AWS), Microsoft (Azure), IBM, Oracle and specialist, niche, and regional providers are taken advantage of.

  • Opex: This is the operational expenditure related to the day-to-day running of systems, applications, and databases. Cloud provides a pay-as-you-use model which reduces wastage. As a result, there is a direct saving on Opex and no upfront investment required for traditional banking systems. In addition, the self-service and automation capabilities offered by cloud vendors reduce manual processes and associated costs.

According to a study by McKinsey, banking organisations can achieve cost reductions of up to 30% in IT infrastructure and 50% in app development and maintenance. The report also found that banks who have migrated to the cloud also achieved significant performance improvements, faster transaction times and improved customer satisfaction.

  • Flexibility & Agility: Banks can respond faster to the market changes and quickly deploy new services and applications, test faster, and launch in days (for example, Bankingly can help banks and credit unions roll out digital services in weeks, not months) without worrying about the underlying infrastructure. This allows banks to drive innovation and be nimble in their approach to meeting customers’ needs.

  • Security: Cloud providers have invested significant resources into ensuring that their data centres are highly secure 24/7 with 99.999% availability Many cloud providers have achieved ISO 27001 certification,the international standard for information security management and other quality, compliance, and mandatory security standards.Overall, it is clear banks can save billions of dollars by moving to cloud computing. Some savings are easy to quantify, while others can be intangible through productivity, branding, service excellence and recouped over time indirectly.

The impact of cloud computing on the banking industry will be transformative. Banks are already starting to move more of their operations to the cloud, and this trend will continue. The benefits are simply too great for banks to ignore. It offers banks not just the edge to compete but to succeed.

Some suggestions:

1. Understand your needs: The cloud is not a one-size-fits-all solution. You need to understand what type of cloud solution is best for your bank. Don’t view it as a silo, but as part of an overall digital transformation.

2. Evaluate the risks: It’s essential to evaluate the risks, pros and cons associated with moving to the cloud. Ask vendors for proof of concept, customer references, case studies, study peers or do a pilot (test) before you go full throttle.

3. Migration plan: Moving to the cloud can be a daunting task, so it’s essential to plan for migration carefully with a clear roadmap, practical milestones, goals and deliverables for each year and assess each milestone.

4. Train employees: Get the management, operations, sales, customer service, marketing, finance and IT teams involved or at least aligned as its impact runs across the spectrum. Employees need to be trained on how to get the most out of it.

5. Manage expectations: Be realistic and practical with any buffer for contingencies. It’s important to manage expectations when moving to the cloud, as there may be some downtime while systems are migrated.

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