Cloud computing technology has the potential to transform the financial services industry. More than merely a mechanism to reduce costs, the capabilities the technology offers provides massive advantages to quickly accelerate service delivery. By accessing the expanding ecosystem of partners and providers who deliver specialist services for cloud, banks are able to construct highly specific, highly specialised propositions to help them gain market traction.
This opportunity to better serve customers opens up a new way to provision sectors that have historically been underserved, particularly the Small and Medium-sized Enterprises market (SME). And this is a market well worth pursuing. Management consultancy McKinsey forecasts a 7% annual growth rate in SME banking revenues globally over the next seven years, offering potentially rich pickings for those banks that take advantage of new technologies to better satisfy the needs of this segment.
Both traditional and challenger banks are looking to leverage cloud-banking systems to foster new business models, not just to merely overcome the prevailing market challenges, but to get ahead of the crowd. The Economist Report shows the responses from a January-March 2019 global survey by The Economist Intelligence Unit, on behalf of Temenos, which surveyed 405 global banking executives on the changes they see taking place in their industry in the next five years. Of the top nine trends, eight arise from external forces. Banks need to be positioned to respond to these external pressures.
Forward into the Cloud
Mainstream adoption of public cloud in banking is predicted to occur by 2023, according to research outfit Gartner. It predicts a five-year growth CAGR of 15.2% (v 7.5% for core banking in general). Public cloud deployment is happening, albeit stronger in neobanks and lower-tier banks, with larger banks more likely to test the water of the public cloud for their digital banks and testing for their parent bank.
Increasing competition for traditional banking is arising from the emergence of technology options, allowing new entrants to capitalise on lower costs of entry, and an increasingly favourable banking regulatory system creating alternative paths to market. Even the regulators are now using Cloud!
These digital banks are well positioned to provide the seamless and meaningful experience business customers are demanding.
Within the evolving landscape, banks are expected to change at a ground-breaking rate. If consumer demand is one end of the spectrum, regulation and new entrants add pressure from the other end. Banks now have to innovate at scale and an even faster pace just to stay relevant.
SMEs, while still the backbone of the business economy, are also dealing with changing market forces. SMEs have been operating in a global climate of low growth expectations, tightening margins, and for some regions, potential disruptions to the supply chain. They are also threatened with the loss of current and future markets. In challenging times, SMEs are seeking better ways to manage their businesses.
Doing What Banks Do Best
Migration to the cloud allows banks to focus on their core businesses and devote their capital and resources to better banking solutions for customers rather than managing IT solutions. The focus of the bank can return to improving services for customers.
Accessing ancillary services and specialist functions via third parties and partners with Application Programming Interfaces (APIs) gives banks new business models.
It is within this growing interconnected landscape that competitive differentiation can be achieved, providing business banking providers the accessible tools to create a compelling proposition for their SME customers, one that will allow them to innovate within their core busineses.
Developing the Right Model
The SME market is now an exciting one to be working in. There are new financial service providers targeting this segment all over the globe, and they are gaining traction. Virgin Money in the UK recently announced its aim to increase its SME banking market share by 40 per cent, announcing an investment of 300 relationship managers working in 40 businesses and banking centres across Britain.
Partnerships Are Key
The Temenos Cloud Platform can provide a stage for SME banking providers to blossom. Temenos has an established ecosystem with APIs that enable banks to execute strategies to thrive in an age of open banking, and perfectly deliver on the proposition to satisfy the banking needs of SMEs.
Temenos’ pre-defined APIs allow banks to create new products and services rapidly with access to over 700 enterprise API endpoints on the Temenos Developer Community. Furthermore, banks can benefit from the ability to enrich the offering to customers through the integration of new FinTech technologies using Temenos MarketPlace.
Temenos offers API-first architecture across both its Digital Front Office and Core Banking products, Temenos Infinity and Temenos Transact.
The future for cloud banking is on a sound foundation.
The next Innovation Event is coming up on 24-25 November: Temenos SCALE is a global Developer Conference for the Banking industry with guided Hands-on Labs, Free Certification, Roundtable discussions and much more.