Banking on the cloud for client lifecycle management

Traditionally, enterprise organizations that operate in heavily regulated industries and handle sensitive data have veered towards on-premise technologies in an effort to keep their data locked safely away in their own data centers and behind their own firewalls. 

The areas of Client Lifecycle Management (which includes client and legal entity data management, KYC, AML and regulatory compliance, and client onboarding) is particularly sensitive to cloud adoption, given the level of sensitive client data and intricate compliance requirements to protect. 

However, times are changing. Cloud innovation is fast becoming a fundamental driver in global digital disruption and significantly gaining more prominence and cogency in the financial services industry, with banks such as Capital One proudly and publicly proclaiming themselves to be a cloud-first bank.   

Traditionally, enterprise organizations that operate in heavily regulated industries and handle sensitive data have veered towards on-premise technologies in an effort to keep their data locked safely away in their own data centers and behind their own firewalls. 

Faced with a new market dynamic ushered in by fintech and regtech firms, banks now find themselves in a digital transformation race – against not only traditional banking competitors, but against new challengers, whose very business model revolves around the use of a myriad of new technologies – among them the innovative capabilities of the cloud.   

The cloud offers three major options for deploying regulatory solutions, namely, Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS). Many banks are also deploying a hybrid cloud model, taking advantage of a mixture of private and public cloud to protect critical data and processes while leveraging the flexibility and scalability that public cloud providers such as Amazon AWS can offer.   

Cloud adoption can deliver many more benefits to banks that on-premise models simply can’t compete against. These include the seven core benefits outlined below:   

1. Significant Operational Cost Savings   

Traditionally, banks’ IT costs are much higher than other industries. Every year, banks face the challenge of having to spend more to maintain infrastructure and run compliance and security technology, while also investing in digital services to remain competitive. However, at the same time, they are under constant pressure to cut costs.    

According to a recent report by IDC Financial Insights, cloud delivers significant cost-cutting capabilities, enabling banks to slash infrastructure costs by a quarter, potentially saving banks up to $15 billion from cloud adoption by 2019.

Infrastructure-as-a-Service (IaaS) platforms such as Amazon Web Services (AWS) or platform-as-a-service (PaaS) providers can remove the need to manage hosting, maintaining, updating and scaling service operations from developers and IT.   

Capital One Bank openly declared they were a cloud-first bank in October 2016. Using AWS since 2015, the bank has moved from managing and paying for eight data centres in 2014 to three by 2018, significantly reducing its cost overheads.    

Similarly, the Bank of New York Mellon, which has been using a private cloud for the past few years, has stated that cloud has enabled it to reduce data center power consumption, eliminate manual patching, double the density on servers compared to virtualization alone and improve the bank’s overall ability to innovate.   

The cost savings that cloud can guarantee, coupled with rapid improvements it can bring to a firm, means that IT functions within banks are shifting from being seen as a cost center to being perceived as an innovation center.   

2. Beating the Competition: Innovation & Customer Experience 

Banks operate in an increasingly crowded and fiercely competitive industry. Over the last few years, the competition has shifted from competing head-to-head with other banks to competing with more technology-savvy and agile fintech firms, who deliver quicker, more convenient banking solutions to customers across the corporate, investment, business and retail banking lines of business.   

However, the competition extends even beyond these players.   

In actual fact, banks are now competing against every firm in the world that delivers a powerful, positive and engaged digital experience for their customers. If we take customer-centric innovators like Amazon, Netflix, Google and Facebook, and examine what sets them apart from the competition, we see it’s their ability to experiment, scale and deliver new features and functionality almost on a constant basis. And how do they manage this? They leverage the full capabilities and flexibilities that cloud technologies can offer.  

It is this shift that is responsible for the banking world now embracing digital transformation. Once the realm of retail banking, digital transformation is now entering the unchartered territories of front, middle and back office operations of commercial, investment, business and private banks.   

Every bank in the world is undergoing a digital disruption of sorts. In their report, IDC Financial Insights states that the cloud will become the “fundamental technology” underpinning digital transformation for banks. 

Digital transformation has one central aim – to deliver services faster, securely and more conveniently in a way that engages and satisfies customers. In a recent benchmark report, SAP found that more than 93% of financial services executives believe that cloud solutions will transform their organization simply by being able to re-focus their resources to better understand and serve customers rather than maintain 30-year-old technology or manage difficult integrations to legacy systems.   

3. Closing the Gap in Customer Relationships    

Cloud technologies allows banks to provide a more consistent, digital experience across all customer-facing channels. It is fundamentally changing the way in which customers interact with data and their banking providers.   

By extending cloud services to clients, banks can empower clients to update data and documentation to support ongoing maintenance of an accurate client risk profile for lifecycle compliance. This not only delivers greater efficiencies for the bank and more convenience for the customer, it also has the capability of facilitating a deeper, closer relationship between the bank and their customers through enhanced digital communications. The idea of extending cloud-based services to clients will also help with regulatory client outreach programs designed to collect the data and documentation required to support and evidence new and evolving regulatory obligations.   

This exchange of information between banks and customers will ultimately impact how the financial industry does business.   

4. Increased Scalability & Firepower    

As mentioned above, cloud tech enables banks to quickly scale processing capacity up or down in order to react to changes in customer demand (infrastructure elasticity).   

Cloud-enabled banks can now move from an environment where it could take months to launch or update an application to where it now takes just days, sometimes even minutes.   

Faster deployment of applications means faster turnaround times, enabling banks to free up valuable resources and budgets to focus on innovation, customer experience and growing the business.   

All of this can reduce complexity and risk, while increasing efficiency of go-to-market strategies for new ideas, features and functionality that can improve efficiencies for the bank and the experience for their customers.   

5. Faster Disaster Recovery   

Cloud technologies provide the flexibility to recover faster and more efficiently from an outage or other disaster, providing a more reliable business continuity solution due to the distributed nature of storage and processing, and the ability to shift data more quickly.   

A recent news report quoted FINRA spokesperson, Ray Pellacchia, as saying, “The capability and flexibility to recover quickly is much greater, and it is far more cost efficient than operating your own geographically dispersed data centers”. 

In an effort to entice more financial institutions to use cloud, Amazon and other cloud technology vendors have evolved the security and minimized the downtime associated with outages. For example, Amazon has expanded the number of data centers around the world and has set up its systems to automatically shift to another data center should an outage occur. This actually helped to minimize the impact of a recent outage that occurred in February of this year, caused by an employee who typed in a wrong code. 

6. Increased Regulatory Transparency 

IaaS has the potential to standardize IT across an organization, making IT updates across a number of units of a complex international financial institution far more efficient and enabling regulators to gain a much clearer picture of any organization.   

Furthermore, in an effort to entice more financial services firms to its cloud services, Amazon has increased the number and locations of its global data centres to allow customers to remain in compliance with specific in-country data privacy rules and regulations.   

7. More Productive Staff   

The cloud embraces the team-based collaborative culture of most modern organizations, which is transforming how people work together and share ideas and information across different teams, units and geographies. As cloud applications are accessible from any location, employees are now more productive and connected than ever before.   

Conclusion: 

In the age of banking digital transformation, cloud technology can deliver the holy grail of technological operations: quick deployment and faster go-to-market innovations that secure a positive client experience at a fraction of the cost of on-premise, while delivering higher operational efficiencies for banks.  

In the next five years, the financial services industry will look very different than it does today. Cloud adoption will be very much innovation as usual enabling all banks to become cloud-first firms that prize speed, innovation and accessibility.    

Niall Twomey, CTO, Fenergo 

Image Credit: MaximP / Shutterstock