- Emergence of the digital bank
- What it means to be a digital bank
- Cloud technology is the transformative power
- The power of change from cloud migration in banking
- Business Impact of the cloud
The banking IT space has always been dominated by powerful machines (and big budgets!) enabling transformation by building the most effective operations in a swiftly changing environment. Fifty years ago retail banking structures were lying on top of a single operational layer; the bank branch. The branch was a "centre of excellence" and an operational point, where all of the banking transactions originated. All of these transactions were sent to the back office and filtered through the various layers of the bank architecture put in place to power the banking products.
However, in the 20th century different layers of operation in banking started to emerge. The contact centre provided another channel of communication, as well as a method of generating transactions. It looked like a huge room filled with people wearing headsets, using up space, energy and became a significant cost for banks. Yet it was necessary, as the world was changing and customers were asking for mobile access to the bank accounts. Then, with the emergence of the Internet, another layer in the banking operations was added, enabling internet banking transactions, often outside of the normal operational hours of the branch and call centre. Mobile followed - and that was a game changer. Banks were acquiring more customers on mobile devices and they produced more transactions than ever before when compared to traditional channels. At the same time, companies like Amazon were changing what the payment transaction experience meant for the customer. A recent study by Accenture shows that 60% of customers want contactless payment apps. The speed, seamlessness, and accessibility to financial services transformed how customers wanted to buy, pay, and bank. The opportunity was clear, but so too was the challenge: the banking structures needed to change. But how would the big banks, built on monolithic architectures, simplify and accelerate their processes to manage so much information generated by the ever-growing processing power needed to empower this transformation?
To be able to compete in this changing and ever demanding space, financial institutions need to drastically evaluate their internal structures and processes as well as improve their offerings. Moving away from traditional hardware operating models was an obvious requirement, but not an easy one to fulfil, involving deep evaluation of core processing, integration of systems, and rebuilding of front-end operations to fit a new digital order.
Digitising the front-end is viewed as an easier option, providing the customer with the choice of interacting with the "back office" when and how they want, and moreover, still being able to access to all the traditional channels - as well the higher value interactions, like applying for a mortgage or solving delicate financial issues. Front end digitisation lead to the revamping of the customer interaction channels, so banks started to build their applications and internet banking platforms, because it was the fastest way to get there. However, the back end was often left completely untouched. The organisation's processes, workflows, back-end, infrastructure - even culture - remained static. Simply, the front end promises a transformation that the back end was not delivering on. How would you be able to sustain such a huge transaction volume produced by mobile, when your infrastructure cannot scale to cope and is not built to be flexible? It's like icing a cake before actually baking it.
Moving one step further into this digital transformation, some institutions see the need even more clearly to align the front end strategy with the middle- and back-office, and realise that they cannot do that with their current legacy infrastructure, so they start to take chunks of that infrastructure and digitise it, adopting a front-to-back digital strategy. Manual operational processes become automated, cost savings emerge, and serving the client becomes the primary focus.
When virtualisation appeared in the mid-nineties, it revolutionised how companies could use computing resources, making it possible to realise the power of the hardware, moving from the utilisation of 10% of the server capacity, up to 90%, introducing savings in time, money and manpower. Having more than one environment running on the same machine enabled them to develop, run, test and scale faster than ever before, which meant becoming more competitive and more reliable toward their customer's growing demands for speed.
Cloud computing technology may have been around for a long time, but it is really only in the past 10 years that banks have started to truly understand that cloud is a portal for change and innovation, that is becoming a necessity. Not only can they reduce costs significantly on outsourcing or renting hardware from vendors like Microsoft, but they can also outsource the software itself to application software providers like Temenos, making it easier to run, operate, and scale in line with business need, only paying for computing power and transactional volumes as they consume them.
Since 2011, Temenos have been providing cloud services to the financial services industry, utilising the Microsoft Azure cloud. The combination of Temenos expertise in delivering best in class banking software together, with Microsoft's leading cloud platform has, allowed them to aspire to the gold standard in supporting clients in moving their core banking operations to a software as a service model.
Co-authored by Ioana Vintila - Global Cloud Product Marketing, Temenos Cloud