Unlocking the benefits of cloud
Today’s banks understand that digital capabilities are critical, with 83% of banks having a clearly articulated digital transformation strategy.
But while banks understand the power of digital, not all are succeeding in implementing robust transformation strategies, and COVID-19 has highlighted gaps in incumbent banks’ customer experience and operational transformation.
According to a recent study, 81% of banks believe the pandemic has made improving their digital skills more urgent, and 60% have not yet made significant progress on executing their digital transformation strategy.
With digital native challengers and fintechs rapidly changing customer expectations of online banking, financial services organisations need to act swiftly to avoid risking further market share.
Most banks are already aware that cloud is not just a distributed storage solution. It can allow for rapid and continuous innovation, better customer experiences and efficiency through automation, among other benefits.
But migrating operations to the cloud in a meaningful way – rather than simply moving existing solutions (and problems) to a new storage system – can be a challenge for even the most digitally focused organisation, let alone legacy banks.
So how do banks navigate the potential pitfalls of a half-hearted cloud restructuring and unlock the value of cloud to keep pace in a rapidly evolving marketplace? Here are a few key considerations banks need to take to ensure their cloud transformation is a success.
Identify key drivers
With incumbent banks accelerating to keep pace with digital-first challengers like Monzo, Revolut, Chime and Nubank, two-thirds of banks leading the way in digital transformation recognise the need for more innovation.
In the rapidly evolving digital banking landscape, banks need to establish not just where their shortcomings lie, but what they need to achieve to implement a successful digital transformation.
It’s not enough to simply ‘lift-and-shift’ data from local systems to the cloud. Most companies have legacy software and platforms which over the years have been updated or merged with other technologies, resulting in redundant code and overly complex processes.
Uploading these systems to the cloud may save hard drive space on local systems, but it won’t help in harnessing the power of cloud.
Cloud is essentially an “abstraction” which effectively allows banks to build something that works in any given scenario, in contrast to existing platforms which were designed to run in one particular, fixed scenario.
The abstraction that cloud enables allows banking systems to become modular and flexible, adapting to new changes in a way in which existing systems simply cannot do.
Align on the approach
Successful digital transformation is, by definition, holistic. Breaking down internal siloes within an organisation is critical not only to ensure total adoption of new digital best practices, but to give a 360-degree view of the customer.
Great customer experiences depend on an organisation being in complete alignment, so establishing an agile framework across the business and optimising your business model, technology and ways of working is key to establishing digital maturity.
In many banks, outdated engineering processes and lengthy approval processes slow development considerably, meaning it can take years to launch something which a more agile company could turn around in weeks, or even days.
Many existing banks would simply replicate their existing processes on cloud, taking a centralised approach which creates delays and bottlenecks. In short, they’re just replicating the same operating model in the cloud.
Only when your business can fully embrace the operational shifts which cloud necessitates can it truly capitalise on the value of digital.
Define a platform model
To deliver great customer experiences and capitalise on the huge amounts of data you have on customers, moving to a platform model is worth considering.
Again, if we look at digital challenger banks, their success is due to the tailored customer experiences they provide and the rapid changes they can make to their business to stay relevant and keep up to date with the competition. A recent study found that it’s the incumbent banks which adapt to keep pace with these digital-first challengers that are leading the way in digital transformation.
And while incumbent banks should not necessarily attempt to mimic the internal structures of their digital competitors, a platform-based approach can help define a customer-led culture and personalised experiences and products.
Execute the cloud strategy
Cloud is central to any bank’s digital transformation strategy, but setting up a cloud infrastructure can be complex and challenging. Multiple internal teams and stakeholders will have their own needs and requirements.
Plus, financial services businesses are in a uniquely difficult position, balancing the need to migrate to the cloud to stay relevant against the complicated challenges related to risk, compliance and security.
Properly executing on cloud strategy is therefore key to the success of the digital transformation project.
Banks should adopt a cloud mindset by fully evaluating their existing shortfalls and developing an aligned plan of action across the business to replace old ways of working with new, agile processes.
In doing so, financial organisations can successfully manage their migration to cloud and develop a strategy which will allow them to face the threats and opportunities of the modern banking landscape.
About the author
As managing partner, David Murphy leads Publicis Sapient’s financial services business across EMEA and APAC.
He has worked with clients including Goldman Sachs, Lloyds, Nationwide, Natwest and Anglo-Gulf Trade Bank.