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28 Apr 2023

The banking industry has started utilizing cloud-based computing in recent years for routine banking tasks.

The banking and financial services industry has recognized the need for differentiated and personalized products and services to stay competitive. In response to the need for differentiated and personalized products, banks are developing products that respond quickly to customer needs. The industry has always been at the forefront of innovation, embracing technology for efficient digital transformation.

As a result of the proliferation of mobile network operators (MNOs), payment service providers (PSPs) and other players in the mobile banking and financial ecosystem, consumers have been able to access banking services more easily. In addition, as technology has advanced, consumers' demand for convenient and safe banking has grown rapidly. As a result, digital solutions have become simpler, faster, and quicker to meet this rising demand.

What is Cloud Banking

The term "cloud-based banking" refers to the deployment and management of the banking infrastructure to manage key banking functions and financial services delivered via the cloud without the use of dedicated physical servers. Before we proceed, let's define what is a cloud bank. A cloud bank is a type of banking infrastructure that exists on the cloud.

Why Cloud Banking

Banks of 2030 will be easier to use, more attractive to customers, and more profitable than today's banks. They will employ a variety of technologies (including open APIs and 5G) that make it possible to connect financial services with homes, machinery, vehicles, and other devices. Banks will offer embedded financial services through consumer apps on smartphones.

Customers will have greater control over their money via digital platforms that enable them to pay bills online or transfer funds between accounts without visiting a branch office. They will also be purposeful in aligning their services with environmental, moral, and social values.

Cloud computing refers to storing data and applications in remote locations using internet-connected computers. It enables banks to keep their servers and data off-site in safe data centres that are available to users online. Cloud computing is expected to help banks meet the above characteristics.

By using the cloud technology, banks are not only able to be more agile and flexible but also store documents in a secure environment. The migration of traditional data centres to a cloud server helps a bank increase security, boost data-handling capacity, and provide access to new delivery channels. The following are some of the main drivers for adoption of cloud in banking:

  • Efficiency

    Cloud computing has helped streamline banking processes, allowing banks to focus on other developments such as new products and services and personalized services based on market demands. Cloud also helps to secure these services, which results in a more secure banking environment for all parties involved.

  • Scalability and flexibility

    Cloud computing offers multiple server-connection options that help a bank scale or de-scale its processing capability based on market demands. The technology allows banks to adjust their requirements without incurring additional cost.

  • Risk Mitigation

    Cloud computing helps lower risks related to capacity, redundancy, and resiliency. It offers more data security and equips banks with more control over their data.

  • Innovation

    Cloud computing allows for the relocation of IT infrastructure services away from administration and towards innovation, which leads to faster delivery of products and services.

    Beside the above, cloud banking can also solve the complex problems:

  • Master Data Management

    Identifying cross-sells and opportunities to enhance client experiences.

  • Containers and API

    API and microservices expose data and services to enable faster and easier access.

  • Analytics

    Cloud-based analysis platform for real-time data.

  • Storage

    The system includes email archiving and storage of voice and chat.

Benefits of Cloud Banking

  • Affordable

    Hosting your banking infrastructure on the cloud is a cost-effective way to reduce operating expenses. A cloud service provider handles the maintenance of your servers, and you pay only for usage hours. Modern cloud services use a pay-per-use model, which is an efficient option for any size bank.

  • Compatible

    Cloud-based banking services are compatible with any platform. Organizations that use legacy software may experience compatibility issues when upgrading their infrastructure.

  • Convenience

    As a result of the convenience offered by cloud-based banking solutions, many banks are shifting to this method of service. CSPs are currently offering data management services, enabling banks to manage intricate operations internally.

    At present, Amazon, Microsoft, Google, Alibaba, and Huawei have a stranglehold on the cloud banking market, controlling over 80% of the sector. This indicates that these industry giants are investing heavily in cloud-based banking. As such, financial institutions have the liberty to select any CSP that fits their needs and budget.

  • Fraud Detection

    Financial organizations cannot afford to ignore data breaches. They must have secure data management systems in place to keep sensitive information safe from cybercriminals. Cloud-based banking solutions provide complete protection to digital retail banks from unauthorized third-party access. These solutions can also aid digital banking institutions in detecting anomalies such as identity fraud and money laundering activities.

  • Analytics

    Banks that use cloud-based banking solutions enjoy the benefit of automated data reporting and analysis. Also, Computing power is essential to managing banking operations. Cloud computing enables you to maintain an eco-friendly infrastructure for your internal and external services.

Challenges of Cloud Banking

  • Regulations

    Financial institutions must abide by numerous local and global regulatory guidelines regarding the sharing of data and usage. At the same time, cloud vendors offer a different set of compliance rules--conflicting with established financial regulations--that banks must cross-reference in order to avoid penalties.

  • Security

    The cloud is not a secure place for sensitive user and company data. Some companies for instance, sells customer information to third parties-a violation of GDPR compliance standards. Although it claims to protect banking data, no guarantees exist that it keeps to its word.

  • Data Migration

    The migration of an entire architecture is a daunting task that most companies struggle to handle. Finding certified cloud computing gurus while transferring from outdated legacy applications can be a terrifying headache. Besides, migrating cloud-based banking services can take several months, depending on the bank's size and underlying infrastructure. The process can disrupt banking operations significantly if the technicians are not trained to carry out the migration process.

  • Outsourcing

    A bank needs a properly trained IT department to implement cloud-based banking core. Outsourcing the migration of a banking system poses additional security risks, as it means handing over control of the entire architecture to a third party. This puts users at risk of having their data stolen.

  • Human Caused Error

    Despite the use of automated software and algorithms, humans still write the code and assemble the core infrastructure for cloud banks. A buggy code fragment can crumble a platform if not fixed quickly. So, you cannot legislate for human incompetence, especially when it affects your bank's operations.

Types of Cloud Service Models

  • Infrastructure-as-a-Service (IaaS)

    The cloud model allows organizations to purchase servers, software, data centre space or network equipment as a fully outsourced service.

  • Platform-as-a-Service (PaaS)

    Businesses can streamline the development, maintenance, and support of custom applications by using an application platform that minimizes their need for hardware, software, and hosting environments.

  • Software-as-a-Service (SaaS)

    The type of application typically used for business services such as accounting, customer relationship management, enterprise resource planning, invoicing, and human resources management.

  • Business Process-as-a-Service (BPaaS)

    Business processes such as billing, payroll and human resources are used to meet the basic needs of businesses.

Cloud Deployment Methods

  • Hybrid Clouds

    A cloud is a term used to describe a group of interconnected computers that come together to form a single entity.

  • Community Clouds

    This model of deployment uses the cloud to help a community of users with similar needs and concerns.

  • Public Clouds

    This is made available to the public and is owned by an organization that provides cloud services.

  • Private Clouds

    This is a cloud service that is managed by the bank and can only be accessed from within the bank. This option is more secure than other services but comes at a cost.

Final Thoughts

Banks are rapidly adopting cloud-based technologies, as they enable quick, flexible, and secure solutions for their customers. These solutions can help banks beat competitors by developing new products more quickly than their competitors, while also boosting revenue and reducing costs.

Contact us to discuss your project if you need assistance deploying on-premises or cloud-based digital banking solutions for your financial institution. Our software will help you build a banking or payment product with quick turnaround time, with the help of our experienced team.