Banking revenues are under pressure because of changing customer expectations, increasing competition, tightening regulations, and a fraught geopolitical and macro-economic climate. As banks strive to navigate these challenging circumstances, most institutions know that superlative customer experience and improved operational efficiency are key to long-term growth and profitability. And the cloud is perceived as a key enabler in this mission.
In fact, 91 percent of respondents surveyed by Capgemini said that they considered a cloud-first strategy as a critical factor for progress.1 This marks a significant change from the sector’s approach to the cloud a decade ago, when cost efficiency and savings were the major considerations.
Cost remains important, but the approach to cloud has now shifted to business transformation and core strategy for ensuring growth. In other words, cloud is now seen as a strategic priority that can impact business objectives, service models, customer engagement, and drive innovation.
Here are some ways in which the cloud can help banks accelerate innovation and growth:
- Deliver Hyper-personalized Experiences
Customers today are used to a highly personalized experience from almost every service they use – from Amazon recommendations based on previous purchases, to Netflix’s curated watchlists based on viewing history. Unsurprisingly, they expect the same from their banks as well. Hyper-personalized, relationship-based, and value-driven banking experiences that encompass pricing, deals, discounts, offers, and loyalty programs are crucial for attracting and retaining customers.
Banks have an advantage over new-age players when it comes to devising personalized strategies given the vast reams of customer data they have at their disposal. The challenge now lies in breaking through organizational silos to leverage this data efficiently. This can yield comprehensive insights about a customer’s journey with the bank and their requirements, which form the basis for hyper personalization. And to achieve this, banks require the agility and scalability of the cloud.
- Support Advanced Analytics and Artificial Intelligence
A comprehensive cloud infrastructure is critical for running advanced data analytics and Artificial Intelligence (AI) and Machine Learning (ML) algorithms. Banks are already using AI to power their hyper-personalization strategies. For example, DBS Bank in Singapore is combining AI and predictive analytics to deliver hyper-personalized insights that help customers to manage financial planning, expenses, and investments easily.2 DBS’ intelligent manage engine can deliver as many as 13 million insights a month. Bank of America has an AI-powered virtual financial assistant, “Erica” that helps customers with their daily financial needs.3 It handles almost 1.5 million client interactions per day. Klarna’s AI chatbot is said to be doing the equivalent work of 700 full-time agents and has led to a to a 25% reduction in repeat inquiries.4
The emergence of Generative AI will further boost hyper-personalized customer-centric innovation. Gen AI’s Natural Language Processing capabilities makes the technology easily accessible. And this can further improve the way banks engage with customers and provide support via virtual assistants, and advanced chatbots. For example, virtual assistants like Bank of America’s Erica can be easily deployed by even smaller banks, and can address a wide range of customer requirements, even deliver proactive recommendations and advice. It can also improve client onboarding processes. And it can help banks expand their service models with AI-powered advisory services that provide personalized investment recommendations based on their risk tolerance, financial goals, and spending habits.
AI is already in use for fraud detection and mitigation since 2022, and generative AI can help organizations further strengthen their security practices. Right now, financial institutions are using Gen AI largely for improving productivity, and McKinsey estimates that just this can potentially add USD 200 billion to USD 340 billion in value for the sector.5
- Unlock New Revenue Models
The cloud also holds the key to new, customer-centric business models. Traditional banking revenue models are proving to be increasingly ineffective amidst significant disruption and changing customer demands. Banks are looking at innovative revenue and business models to protect and grow their business. Further, banking of the future will be intuitive, intelligent, and integrated. Innovative models such as Banking-as-a-Service (BaaS) are already witnessing rapid uptake across the sector as banks gear up to face increased competition in a turbulent market. The BaaS model allows banks to integrate banking services and products with non-banking businesses using Application Programming Interfaces (APIs). This seamless integration creates a customer-centric ecosystem where their needs are met, and they have easy access to finance options. Banks have the flexibility to be a part of a third-party business’ ecosystem or orchestrate one of their own.
- Meet ESG Goals
The world is at the brink of a climate crisis, necessitating increased focus on strategies to achieve net zero goals. Customers and other stakeholders are demanding greater accountability and action from organizations when it comes to sustainability. And there is also increasing regulatory pressure on the ESG (Environmental, Social, and Governance) front. The banking sector has been increasing their green commitments, and investing in sustainability initiatives and this trend is likely to intensify in the next few years.
Financial institutions must embed sustainability into their technology lifecycle and core business strategy to meet ESG goals. And this is not possible with on-premises infrastructure. A robust cloud foundation can consolidate operations, improve efficiency, and drive innovation, all of which can help cut down energy usage and reduce carbon footprint. In fact, the cloud can streamline the process of measuring and monitoring emissions, enable data sharing, and collaboration within the organization to ensure accountability and quick action. With a powerful cloud platform, banks can refine their ESG initiatives quickly and effectively to meet evolving risks and requirements.
Roadblocks on the Cloud Journey
The banking sector’s adoption of cloud as a strategic business transformation tool is not without some challenges. In 2020, only 37 percent of banks had started their cloud transformations.6 Today almost 91 percent of financial institutions have kickstarted their cloud initiatives. But, more than 50 percent of organizations have not moved significant portion of their core business applications to the cloud. The challenge lies in the complex sprawl of applications and legacy infrastructure. Modernizing legacy cores and applications and integrating them with the cloud as well as migrating critical workloads can prove to be a challenge and can impact operational efficiency and customer experience. There are also regulatory risks to be considered. Data privacy, security, and data sovereignty are serious concerns that must be addressed in the migration plan. A comprehensive cloud strategy and migration plan along with an experienced team are critical elements for the move to the cloud.
As banks navigate evolving customer expectations, regulatory landscapes, and technological advancements, the cloud will undoubtedly be their indispensable ally. With a robust cloud foundation, they can not only weather the storms of disruption but also thrive in an era of constant innovation and customer centricity.
