Even though cloud computing is over a decade old, many banks are still on the threshold of this technological transformation. Why? Complicated regulations, data protection and – let’s face it – fear of the unknown. However, those who have gone through the complicated process gain a significant competitive advantage. Therefore, in this article we will show what this transformation looks like, what benefits it brings, but also highlight potential pitfalls and limitations.

The transformation of banks to the cloud is a response to the growing needs of digitization, efficiency, and innovation. Banks are seeking to leverage the cloud to increase their competitiveness, improve data security, and ensure better availability and scalability of their services. Transformation to the cloud also enables quick adaptation to changing market and regulatory requirements. Transferring banking operations to the cloud allows banks to better manage data, increase its security, and ensure the continuity of services.

Scalability and flexibility
Banks can easily scale their IT resources, adapting them to current needs, without having to invest in additional infrastructure.

Cost optimization
The cloud model allows you to pay only for the resources used. This reduces the need to maintain expensive data centers.

Innovation
The cloud facilitates the implementation of new technologies, which allows banks to introduce innovative products and services faster.

Examples of successful transformations of banking institutions to the cloud

I. JPMorgan Chase – Cloud investments as an element of strategy

JPMorgan Chase, a banking behemoth with massive amounts of data to manage, has also turned to the cloud. His approach was gradual, based on a hybrid cloud model, which allowed old systems to be combined with new solutions. This transition has become crucial to reducing time to market, improving customer experiences and increasing data security. Over time, JPMorgan is increasingly investing in the cloud, working with providers such as AWS, Google Cloud and Microsoft Azure, which indicates that banks do not have to be limited to one cloud technology.

II. HSBC – Safety first

In the case of HSBC, one of the biggest issues in moving to the cloud was data security and regulation. For this reason, the bank decided on a strategy that protects the interests of customers while using the cloud’s potential for innovation and optimization. Working with cloud providers and external consultants, HSBC has developed a regulatory compliance system so that customer data is safe, and the bank can use the flexibility and scalability of the cloud to develop its services.

 

III. Capital One – Pioneer in cloud adoption in the banking sector

Capital One became one of the first major banks to completely move its IT infrastructure and operating systems to the public cloud. It was not an easy decision, but in hindsight – a very wise one. Their transformation began in 2014, when CEO Richard Fairbank announced that the cloud offered opportunities that traditional data centers could never offer. Thanks to cooperation with Amazon Web Services (AWS), it was possible to transform the way the bank manages data, develops applications, and introduces innovations. Currently, Capital One is an example for other institutions and shows that transferring entire operations to the cloud can be found not only in fintech start-ups, but also in established banks.

 

Although cloud banking promises lower costs, greater flexibility and innovation, not every journey to the cloud ends in success.

 

Disadvantages of cloud transformation

Although cloud banking promises lower costs, greater flexibility and innovation, not every journey to the cloud ends in success. The cloud migration process is complex and requires careful planning and execution to avoid potential risks and failures. Financial institutions, especially those operating in the regulated sector, must carefully follow guidelines and best practices to ensure the success of their cloud transformation. Here are 2 industry-famous cases of failed transformations (we do not provide these institution data on purpose).

Problems with the legacy system

Bank X, one of the leading players in the Asian market, has started moving to the cloud with the intention of integrating with existing legacy software. Unfortunately, the clash of modern cloud solutions with outdated banking systems has brought more problems than benefits. Difficulties with data compatibility and portability led to long downtime, frustrating customers and causing disruption to the bank’s daily operations. Ultimately, bank X decided to return to more traditional IT solutions, losing millions of investments in cloud technologies.

Scaling too aggressive

Bank Z, known in the US market for its innovative approaches, attacked the market with the ambition to be a pioneer of cloud banking. However, their all-or-nothing strategy proved too aggressive. Trying to scale all banking operations to the cloud in record time resulted in operational chaos, performance issues, and a shortage of human resources capable of managing the new environment. Customers complained about errors in services, and the bank was forced to carry out a costly “rescue” operation to restore operational stability.

Among the disadvantages of transformation to the cloud, representatives of financial institutions most often mention:

Data security
Security concerns are a major barrier for banks. However, properly managed cloud is often more secure than traditional IT solutions.

Compliance with regulations
Banks are subject to strict regulation, which means that transferring data and operations to the cloud must meet specific legal requirements.

Supplier dependency
When choosing a cloud service provider, banks must be ready for the risk of unavailability of services or bankruptcy of the provider.

Did you know that regulatory compliance is a critical aspect of cloud adoption in banking? Banks need to ensure that their cloud solutions meet stringent regulatory requirements to protect customer data and maintain trust.

 

In 2020, thefinechtimes.com published the results of a survey in which it asked representatives of financial institutions about the 3 biggest limitations in the transformation to the cloud. According to the respondents, they were:

1. Restrictions on transferring legacy systems:
Many banks have old, no longer supported systems that are difficult to transfer to a modern cloud infrastructure.

2. Organizational culture:
Transformation requires not only technological, but also cultural changes – and these are often the most difficult to implement.

3. Infrastructure requirements:
Large-scale transformations can require stringent infrastructure requirements that are time-consuming and expensive.

The transformation of banks to the cloud is a key step towards digitalization and modern banking. The advantages of such a transition are significant, but the disadvantages and limitations should not be ignored. It is important to remember that the real value lies not only in the technology itself, but in how we use it to create value for customers and how we deal with challenges. A bold and responsible approach is a recipe for success in the era of cloud banking.

*****

Are you thinking about transforming to the cloud? Check out our fully flexible BOS core banking system. 
Reach out for details –>