Like most industries, the financial sector is rethinking its digital and computing strategies to keep up with the trends and demands of its customer base. And like most industries, the financial sector is concerned with the risks of operating in the cloud. But the financial sector needs to continue to release its control and fears to optimize growing opportunities in the marketplace.
FinTechs, or financial technology startups, are taking the industry by storm providing customers with the kind financial products and services they are seeking. These companies are finding fast and flexible solutions to daily banking needs. Services range from peer-to-peer payment such as Venmo, digital wallets like Paypal and mobile money accounts. Leading this charge is the millennial generation, a group of consumers that is demographically large, has significant spending power and is accustomed to using technology in their daily lives.
According to a recent report by Oracle, this millennial generation is mainly concerned with having a mobile-first experience, one that is convenient, fast and safe and not limited to physical branch interactions. Banks have known for some time this is the direction the market was headed, and many have incorporated mobile apps and features for their customers. These market-driven needs are the reason why banks are partnering with FinTechs to enhance their product offerings. This is also why some FinTechs are even trying to compete with banks to snag market share with solutions better aligned with customer needs.
Roadblocks for Cloud Adoption: Risks and Regulations
Making a complete digital transformation has certainly been a challenge for banks. That’s not surprising. The amount of regulations surrounding the banking industry are such that most firms are very cautions when it comes to the penalties associated with putting customer information at risk. The regulations that are set by financial governing bodies are notoriously confusing and do not take into account the new, dynamic options that exist with cloud or digital infrastructure. These regulations and penalties are deterrents and a major drag on innovation in the cloud by financial institutions.
But these regulations do serve a purpose. The protection of bank customers is a top priority, and protecting personal and financial information is absolutely necessary. CIO Dive reported that nearly one in five survey respondents had suffered a data breach in the last year. The threat of cyberattacks targeting customer data can make cloud and digital innovation seem like a greater risk than it’s worth.
Banks Need to Stop Focusing on Risk Aversion and Focus on Problem Solving
Where FinTechs are winning the battle in the market is their ability to identify and solve problems quickly and on point with consumer demands. Their specific focus on financial services allows them to meet the needs of consumers more efficiently than banking institutions that may not have digital customer engagement and online strategies as core competencies.
Some larger banking institutions are getting in the game, taking advantage of the agility and flexibility with cloud computing and digital banking. World Bank and Capital One are examples of this change in a recent article by CIO magazine. The World Bank now uses cloud computing to generate data that helps the US Government fight poverty, ultimate providing a better and more targeted service the citizens in need.
Capital One has been at the forefront of a digital-first strategy and been a leader in the industry for digital banking and cloud solutions. In order to compete with emerging FinTechs and easily accessible public apps, Capital One began experimenting with cloud computing in AWS. It also build a digital innovation lab that could create its own digital infrastructure to support the development of products and services. While there has been skepticism that banking institutions will not move into the cloud, Capital One has been shrinking their physical data centers and shifting some of their most critical workloads to AWS.
This transition has helped Capital One respond to customer needs more efficiently because developers can create solutions that reduce cost to the company, while also meeting high demand needs of customers, especially during peak spending seasons like Black Friday. The ability to provision infrastructure and deploy digital products quickly and on-demand is key for its productivity and speed to market.
For financial institutions, staying ahead of a dynamic customer base is key to driving success. With a big population of millennial dominating the digital market, it would be prudent for banking institutions to look at all options and leverage cloud computing to meet their compute infrastructure needs. Seeking partnerships with FinTechs or staying competitive with them will help banks stay relevant in an ever-changing marketplace.