Cloud banking offers greater flexibility and opens up markets to new competition.
By Andrew Reeves, MD of Temenos Cloud
Cloud computing has become a key feature of the modern business environment. It allows enterprises to use the internet to access hardware, software or services as and when they need them, without having to own any infrastructure of their own.
Businesses are therefore able to substantially reduce their costs, as they are using the resources of the cloud service provider. They are also able to scale operations faster and more easily, as they just acquire more capacity on the cloud as they need it.
Banks have however been relatively slow when it comes to the use of the cloud. Andrew Reeves, the managing director of Temenos Cloud at Temenos, says this is because the industry has particular challenges that need to be addressed.
"Banking, as an industry, is very risk averse and has its own unique set of pressures and constraints in terms of the regulatory environment and how data must be handled and controlled," says Reeves. "It has therefore been slower than most industries in moving onto the cloud."
Financial sector regulators around the world have been concerned about banks using online storage services for customer data due to perceived security risks. As there are only three companies that dominate cloud provision – Microsoft, Amazon and Google – regulators have also been worried about the implications of concentrating so much information in the hands of a few organisations.
However, Reeves believes that this is changing. Regulators are acknowledging the benefits available to banks through the cloud and starting to adapt their thinking.
"The large scale providers are engaging with the regulatory bodies and while I think there has been some initial resistance, a lot of work has been done to educate regulatory bodies about what using the cloud actually means," he says. "I think the regulators themselves have realised that there are benefits to utilising these more modern infrastructure environments where banks can leverage the massive investments of Microsoft, Amazon and Google. They are seeing that the technology can provide a very secure environment, which is better than the banks could achieve themselves."
This is now filtering through to the industry.
"Banks are starting to get more guidance on the outsourcing of material services," Reeves notes. "Essentially, this is about how they can leverage cloud providers to allow them to be banks and focus on what they need to do rather than having to run large IT setups."
Regulators are also appreciating that cloud banking is a powerful way of opening markets up to more competition.
"New entrants are able to utilise these environments to launch services into the market without having to set up huge IT resources," Reeves points out. "It significantly reduces barriers to entry and also allows them to scale up very quickly."
For established players, cloud banking offers a number of significant benefits. It provides the potential to lower costs, allows for greater innovation, and delivers the flexibility to respond to change.
"For large banks, it's about identifying scalable, easily deployable software and an underlying platform that can deliver that so that they can scale that platform as the bank grows," says Reeves. "The cloud is a great enabler to give banks more flexibility."
An example is Itaú Unibanco, the largest financial conglomerate in Latin America. It is implementing Temenos software on the cloud in its operations outside of its Brazilian home market to enrich the customer experience, reduce time to market for new products, generate efficiencies and reinforce the segments' digital strategy.
"We are seeing banks utilising the cloud like this to optimise their existing business and enter new markets," Reeves says. "In the latter case, they want to enter a new area in an efficient and cost effective manner so that they can test the business case before making further investments."
Singaporean bank Fullerton is doing something similar in Myanmar. It has launched services in that market using the cloud, which has enabled it to grow rapidly without having to make huge investments in IT infrastructure.
According to the Making Access Possible survey by the United Nations Capital Development Fund, more than 70% of adults in Myanmar don't have formal access to credit, deposit and other financial services. However the cloud enables Fullerton Myanmar to address these issues of inclusion by giving the bank the ability to conduct secure transactions using smartphones and tablets in the places where people live and work.
By turning to the cloud, banks with microfinance programmes get more of their capital invested in helping the businesses and the individuals they are trying to support, instead of investing it in buildings and infrastructure. Furthermore, cloud banking can help any bank optimise the delivery of their services to clients.
Reeves believes that these trends will play out in South Africa too. Microsoft's recent announcement that it will be investing in data centres in South Africa shows that providers see the potential of this market.
"We think this is a very positive step because the large providers don't tend to make these kinds of investments lightly," says Reeves. "There must be an addressable market for them to put facilities in new geographies."
First published on Moneyweb.co.za