Why the Banking Industry Should Embrace Cloud Computing

March 22, 2023
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As technology evolves, the banking industry must keep up with the latest trends to meet changing consumer expectations and remain competitive. 

One of the most significant shifts in recent years has been the increasing adoption of cloud computing in banking. From data storage and applications to revenue generation and cost control, the benefits of the cloud are becoming increasingly clear for banking leaders. 

The top providers of public-cloud services now offer ‘products-as-a-service,’ which allows banks to monetize enterprise data assets and deliver market-relevant products and services. With cloud computing, the banking industry can strategize for the future and stay ahead of the curve in this rapidly changing landscape.

In this article, we will focus on the impact cloud computing has on the banking industry.

What Is Cloud Computing

Cloud computing refers to accessing computing resources such as servers (physical and virtual), applications, data storage, networking capabilities, and development tools via the internet. 

These resources are hosted at a remote data center managed by a cloud services provider (CSP) and are made available to users on demand. The CSP charges a subscription fee or bills according to usage to provide these resources.

Why Is Cloud Computing Important in the Banking Industry?

Cloud technology offers many benefits that significantly enhance banks’ operational efficiency and overall business performance. Banks need to understand these advantages to effectively utilize the robust deployment and delivery model of cloud computing. 

1. Improved Operational Efficiency

By utilizing highly scalable and distributed computing resources, cloud computing enables banks to centralize and streamline their data capture, storage, and interpretation processes. 

Unlike legacy data storage silos, cloud-based systems can handle massive amounts of data real-time without any bottlenecks or performance issues. 

This is because cloud infrastructure is designed to be highly elastic, allowing banks to scale up or down their computing resources based on their data processing needs.

2. Cost Reduction

Embracing cloud computing allows banks to use computing resources pay-per-use instead of investing in expensive hardware and software systems upfront. By using cloud services, banks can avoid the need to purchase and maintain their own IT infrastructure, which can be a significant capital expenditure.

For instance, banks might need to purchase many servers and storage devices to support their internal IT systems. They would also need IT personnel to manage and maintain these systems. These upfront costs can be a significant burden, especially for smaller banks.

By creating its cloud infrastructure, Bank of America has achieved significant cost savings of $2 billion annually. The move has resulted in a reduction of the bank’s server count from 200,000 to 70,000 and a decrease in its data centers from 60 to 23. 

3. Scalability

The cloud allows banks to scale up or down their IT infrastructure quickly and easily based on demand. This is particularly useful during peak usage periods, such as during busy holidays, when more computing power may be needed to handle the increased transaction volume.

4. Flexibility

Cloud computing allows banks to access their data and applications from anywhere and anytime, giving employees the flexibility to work remotely or on the go. This enhances collaboration and improves productivity.

5. Improved Security 

CSPs invest heavily in their security infrastructure and employ teams of security experts to design, implement, and maintain robust security measures. These measures can include physical security controls, such as secure data centers, and access logical controls, such as firewalls, intrusion detection and prevention systems, and data encryption.

For banks, partnering with a CSP can provide them access to advanced security measures that are difficult and costly to achieve in-house. For example, a CSP may have a team of security experts dedicated to monitoring potential threats and responding to incidents real-time. They may also have invested in cutting-edge security technologies that banks cannot afford independently.

Additionally, CSPs are subject to industry standards and regulations, such as the Payment Card Industry Data Security Standard (PCI DSS), which require them to meet specific security requirements. 

6. Enhanced Innovation

The banking industry can leverage cloud-based technologies to quickly innovate and develop new products and services. The cloud provides banks access to a range of new technologies, such as machine learning and artificial intelligence, that can be used to create innovative solutions for customers.

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7. Compliance

Banks operate in a highly regulated environment and must comply with strict regulations and standards. Cloud computing can help banks to achieve compliance by providing built-in controls and safeguards that can be audited and monitored.

Equity Bank Kenya has implemented cloud-based systems to store and process customer data, which allows them to achieve compliance with data protection regulations and standards. The bank has also implemented cloud-based security solutions to protect against cyber threats and ensure their customers’ financial information security.

Cloud Deployment Options

Banks that rely on legacy systems running on on-premise data centers may feel overwhelmed when considering modernizing and migrating to the cloud. However, they can adopt an incremental approach by combining several cloud solutions based on their business needs, level of readiness, and maturity.

a. Private Clouds

Private clouds are managed and governed by a third-party provider or the bank. Banks often prefer them for hosting their services due to the greater flexibility, security, and control they provide. Since they are deployed within the enterprise’s firewall, they offer an added layer of protection.

b. Public Clouds

Public clouds are easily accessible and allow the banking sector to own, manage, and share cloud services. Banks that are looking for economies of scale can benefit from the use of public clouds.

Microsoft Azure is a prime illustration of a public cloud service. It operates under a cloud model in which various organizations or tenants share the same hardware, storage, and network devices. Account management and service access are carried out through a web browser.

c. Hybrid Clouds

Hybrid clouds focus on combining private and public cloud services environments that can be used separately for specific use cases. This model allows for standardized data management across both private and public clouds. 

Banks can deploy their systems on a private cloud while scaling up with the help of a public cloud whenever necessary.

Azure Stack is a good example of a hybrid cloud. It provides a common platform by sharing its code, APIs, and management portal with Microsoft Azure to address hybrid cloud challenges. It caters to organizations that must comply with regulations or keep certain data private but still want to leverage the benefits of a cloud-like platform.

d. Multi-Cloud

A multi-cloud deployment refers to using multiple public clouds by a company instead of relying on a single cloud provider for their cloud hosting, storage, and application stack needs.

It allows for utilizing multiple IaaS vendors and leveraging different cloud vendors for different services. It can also be a redundancy and backup solution, providing greater system reliability and uptime.

Why Has the Banking Industry Been Reluctant To Adopt Cloud Computing?

Despite cloud computing becoming a popular and widely adopted technology, the banking industry has been relatively slow in embracing cloud computing.

a. Security concerns

Banks are highly regulated institutions that handle sensitive financial and personal data, and as such, they must ensure their data’s confidentiality, integrity, and availability. The potential risks associated with cloud computing, such as data breaches or cyber-attacks, make banks hesitant to migrate to the cloud.

b. Compliance and regulatory requirements 

Banks must comply with various regulations, such as the Gramm-Leach-Bliley Act, which requires strict control over customer data. These regulations can make it challenging to move data to the cloud, where it is stored and managed by third-party providers.

c. Legacy systems

Many banks have invested heavily in legacy systems that are not easily integrated with cloud-based platforms. This can make it challenging to migrate to the cloud and requires significant investment in modernization.

d. Cost concerns

Although cloud computing can offer cost savings over traditional IT infrastructure, the cost of migrating to the cloud can be high, and the return on investment may not be immediate.

e. Lack of expertise

The transition to cloud computing requires specialized skills and knowledge many banks may not possess. The shortage of skilled cloud professionals can make it difficult for banks to implement cloud computing solutions.

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Conclusion 

Cloud computing has become increasingly popular in the banking industry due to its many benefits. Cloud computing allows banks to centralize and streamline their data capture, storage, and interpretation processes, improving operational speed and scalability. 

Additionally, it reduces costs by eliminating the need for banks to invest in expensive hardware and software systems upfront. Banks can adopt an incremental approach by combining several cloud solutions based on their business needs, level of readiness, and maturity, such as private, public, and hybrid clouds. 

The banking industry has been slow in embracing cloud computing for various reasons, including security concerns, compliance and regulatory requirements, legacy systems, cost concerns, and lack of expertise. Banks must carefully evaluate the risks and benefits of cloud computing and develop strategies to integrate it into their operations securely.

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Victoria Munyi
Victoria Munyi
Victoria is a seasoned SEO content writer and copywriter with proven experience in creating unique, insightful, and engaging content for a wide range of audiences that ranks high on search engines.

She is also a personal finance coach who will help you manage your money better by reducing wastage and identifying opportunities to grow your income. Follow her on her social media pages where she talks about personal finance and business growth strategies.
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