An ongoing challenge for traditional banks and financial institutions is the speed at which they are making the switch to digital. This ‘digital lag’ has resulted in online outages at leading financial institutions affecting the ability to provision for a consistent and seamless customer service.
Overloaded legacy systems are impeding the ability to transform digital banking operations, impacting on end user experience. Banking outages are increasingly inconvenient for customers who need to check their online accounts, make payments and transfers instantly. These outages are also resulting in potential loss of revenue and reputational damage for corporate customers, who depend on banking services for the smooth running of their businesses both on a local and an international scale.
‘Big tech’ expectations
At the same time, ‘Big tech’ are setting new instant expectations with customers who have become used to always-available, real-time, and portable solutions. A new UK survey conducted by Censuswide (2019) shows that these instant expectations are now the staple of the banking world, with 4 in 10 consumers expecting to be able to set up their banks accounts instantly, despite the fact that only a third of traditional banks are able to do so. The data also showed that almost double the number of UK customers of traditional banks, experience disruption to their service on a yearly basis compared to challenger banking users.
If traditional banks do not respond to these demands they risk becoming irrelevant and losing market share. It is essential that banks abandon nostalgic ways of working and fully digitise their offerings as soon as possible, to put them on the an equal footing with their nimble and flexible neobank competitors.
Staying competitive with the cloud
- Exploring state of IT in banking sector and the move to the cloud
For traditional banks to stay ahead of the competition they must harness a three-layer IT architecture. This involves the separation of product and client data, with APIs interconnecting between the layers helping banks to create a seamless customer experience.
Banks can then move core banking systems to the cloud to remove the barriers caused by legacy systems. Instead of managing IT and security issues, opting for a SaaS platform enables banks to spend time and money on the things that matter.
The benefits of cloud banking
By embracing digital core banking in the cloud, the need for a bank to invest heavily in dedicated hardware, software, and resources to maintain systems is no longer necessary. As a subscription fee is made to a SaaS provider, system maintenance costs and legacy technology issues are reduced. Rather than spending a small fortune on IT, SaaS provides banks with the ability to reallocate budgets so they can focus on innovation, customer satisfaction and business growth.
Using a core banking system in the cloud requires standardised applications and processes, which makes it easier to align technology and business operations. Too many legacy systems and built-in customisation are the reasons behind why many banks are not able to meet the changing demands of the customer. Switching to a digital core banking platform that is based on standard building blocks and configuration editors ensures the viability and efficiency that banks need.
A flexible and scalable approach
Cloud-based banking provides banks with a competitive advantage over those that don’t use it. Banking in the cloud enables banks to respond quickly to the market and changing customer needs. The ability to act in an agile manner is the most effective way to achieve scalability and flexibility at speed.
Acceleration of new products and services
Cloud banking makes it easier to accelerate the launch of new products and services, especially when configuration editors are used. Configurability provides banks with their own products and processes without being over-reliant on IT professionals. Banks also have the peace of mind that technology is up to date because this is managed by the SaaS provider.
Ensuring compliance and security standards
The myriad of regulatory hurdles has caused the need to ensure a high level of security and privacy to stay compliant. It is paramount that banks know where their data is at all times. Siloed data management increases the risk of non-compliance and data breaches, which can only be overcome if banks can view all their data on one portal.
Security concerns remain the biggest barrier to a bank adopting a cloud-based solution. However, higher levels of security are provisioned for in a cloud environment. SaaS providers have larger, dedicated teams that work on security, which is something that a bank can find difficult to allocate resource to due to the rising demands of customers.
FinTech collaboration for growth
Finally, as cloud-based platforms are compatible with open APIs banks can open up their doors to a plethora of third-party services to create bespoke solutions aligned with the needs of the customer.
A platform in the cloud provides banks and financial institutions with a range of in-house and third-party products and services. This ‘plug and play’ model helps banks to make use of the latest and greatest fintech innovations, and drive expansion into new markets.
Peter-Jan Van De Venn, Executive Vice President of Business Development, five°degrees