Powering Innovation: Banking’s Embrace of the Cloud

By Theodora Lau and Bradley Leimer of Unconventional Ventures 

Digital transformation journeys for financial institutions — regardless of size — present many challenges. Due to complex risk and compliance requirements that come with being in a heavily regulated industry, banks have traditionally been more of a follower, rather than a leader, in adopting emerging technologies such as artificial intelligence, machine learning, edge computing, as well as cloud based services. As a result, much of the workload and processes have been maintained on costly, on-premise servers and their associated infrastructure. 

However, the attitude towards public cloud adoption has been changing rapidly. According to recent research by Celent, “19 of the top 20 banks in the U.S. have already announced public cloud initiatives.” More than half of financial institutions surveyed expect to run the majority of their processing workloads in a cloud environment within five years. Such optimism is largely driven by successes that financial institutions have had with initial cloud deployment, as well as the urgent need to transform their operations and better position themselves against their competition, a changing financial services ecosystem, and customers with greater choices. 

Cloud Environments for Banking 

Banks have many options when it comes to deploying their cloud infrastructure: 

• A private cloud leverages virtualization technology to combine resources within physical infrastructure into shared pools and automatically provision them depending on enterprise requirements. This single tenant cloud is located on premise and owned and operated by the organization. 
• A public cloud is a set of virtual resources managed by an external provider that is automatically provisioned and allocated among multiple clients through a self-service interface. While these resources are shared, each customer’s data and applications are hidden from other cloud customers. 
• A hybrid multi-cloud takes the best of both worlds, allowing management on and off premise, and across different providers. Larger financial institutions are most likely to be operating in this environment. 

Across each of these different environments, open source technologies help manage containers that enable applications and data to move from cloud-to-cloud in a secure infrastructure. This level of security and flexibility are vital for banks to benefit from cloud technology and extensions of hybrid cloud infrastructure like edge computing.  

Why Banks Must Leverage Cloud Computing

While embracing cloud infrastructure is not a silver bullet, it offers a myriad of benefits, including scalability, agility, efficiency, resiliency, innovation, security and compliance. 

The primary considerations for banks include: 

• Scalability: It allows for operations to be scaled up as needed, improving agility and and allowing resources to be leveraged with greater flexibility and efficiency. 
• Agility: Leveraging the cloud increases a bank’s capacity to process large, complex sets of data, perform extensive data analytics, all within a secure environment. 
• Efficiency: It removes the cost of upgrading servers, infrastructure, and associated operating costs, as banks only pay for the applications and services they use.  
• Resiliency: As teams have been forced to be remote due to the current pandemic, enhancing your financial institutions ability to quickly meet changing conditions has become paramount. The industry needs to become more open to the realities of the changing business model, and rapidly changing market conditions. 
• Innovation: A flexible environment, supported by an ecosystem of independent software offerings enables more rapid innovation, and allows banks to test applications and new data workflows, providing them with a competitive edge within their respective markets.   
• Security and Compliance: When it comes to balancing innovation and security and regulatory compliance requirements, financial institutions face unique obstacles as a highly regulated industry that is also mission critical. 

It is crucial that banks carefully consider the full capabilities of their technology partners, who can assist them in the transformational journey to the cloud. 

Aside from deep industry expertise, having a good understanding of local markets and implications of regulatory requirements is essential. And ideally, such partners should also have a large repository of software vendors in an established ecosystem for the financial institutions to leverage from. 

A New Bank Focused Offering Emerges 

With an ecosystem of leading banks including Bank of America and BNP Paribas, along with more than 30 independent software vendor (ISV) partners including Adobe, Amberoon, Assima, and VMware, IBM Cloud for Financial Services offers a new generation of cloud for the enterprise. 

Central to this offering is the IBM Cloud Policy Framework for Financial Services, delivering the controls required to operate securely with bank-sensitive data in the public cloud, enabling financial institutions to innovate and deliver new, more personalized customer experiences, while managing stringent industry regulations for sensitive data and complex workloads.

As many banks seek new opportunities in a more open banking environment driven by APIs and partnering with fintech startups, they are realizing they need more flexible systems to optimize these partnerships, as well as more secure systems leveraging technologies like Hyper Protect Crypto Services and Keep-Your-Own-Key (KYOK) capabilities. 

With ever evolving regulation, financial service firms have to continually adapt to new security and data privacy standards, which requires tracking, reporting, and documentation. Banks can build more robust compliance checks and tools within a more flexible cloud environment designed with meeting updated regulatory needs from the ground up.   

Post Pandemic Transformation 

COVID-19 has deeply transformed the way we live and work. As customer needs continue to change and the economy continues in unchartered waters, financial institutions must adapt accordingly. 

Accelerated digital adoption by consumers will demand a more secure and personalized payments model. An increasingly decentralized workforce will require new ways for bank employees to work and collaborate, and new technologies to interact with and respond to customers. 

Forward-looking financial services organizations will leverage this opportunity to innovate and plan for resilience and future growth. There are many ways banks can accelerate innovation via the cloud:

• To re-imagine customer journeys, and reinvent digital customer experience that is more personal and embedded in the day-to-day life of the customers, enabled by AI and machine learning; 
• To drive market differentiation and make informed decisions, leveraging internal and external insights from advanced data analytics;  
• To accelerate digital transformation journey, and leverage emerging technologies such as automation and blockchain, and expand operations with new capabilities at reduced costs; 
• To re-evaluate risk exposure and business models to reflect market conditions;
• To enable remote and hybrid teams to collaborate effectively and securely.

The move to the cloud is not only inevitable; it is now an industry tablestake. 

It is time to embark on this journey with a trusted partner, or be ready to be left behind. 

This article was sponsored by IBM. Learn more about their solutions at https://ibm.co/30PXphI. 

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Digital transformation journeys for financial institutions — regardless of size — present many challenges. Banks have traditionally been more of a follower, rather than a leader, in adopting emerging technologies. In one area, that is changing rapidly: cloud computing. In this episode of the One Vision podcast, Randy Walker, Global Managing Director, Financial Services, of IBM, discusses the launch of IBM Cloud for Financial Services with Theo and Bradley. He shared with us the many benefits of leveraging cloud computing infrastructure for financial services firms, and how IBM’s ecosystem is growing to meet the needs of their banking clients. You can find this episode on iTunes, Spotify, and Google. 

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Unconventional Ventures helps drive innovation to improve systematic financial wellness. We connect founders to funders, provide mentorship to entrepreneurs, strategic advisory services to a broad set of corporates, and broaden opportunities for diversity within the ecosystem. Our belief is that anyone with great ideas should have a chance to succeed and every voice should be heard. Visit unconventionalventures.com to learn how you can partner with us today.

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