Future-fit cloud banking system: challenges and benefits

Cloud banking is fast becoming a ticket to the game for banks and regulators as financial services incumbents face up to stiff competition from innovative digital banks, and regulators race to keep up with the shift from on-premises to online, on-demand banking systems.


Cloud banking allows banks to outsource their banking activities to external digital service providers, the biggest being Microsoft, Google, and Amazon Web Services. These tech giants provide banks with access to sophisticated and more economical computer platforms on which their banking applications can operate.


The wholesale transition to cloud banking has been slower than expected to date but is rapidly gaining pace. Several challenges have stood in the way of banks taking the leap, namely security concerns, regulatory considerations and the mammoth task of shifting operations and customer data from legacy systems to digital platforms.


The shift to cloud banking is gathering pace


However, leading global banks are becoming more and more vocal about the benefits of cloud banking and most already have strategies in place to maximise the benefits offered by cloud banking. A survey of bank executives conducted by Accenture found that 82% planned to have at least half their mainframe workloads in the cloud within a decade, and almost a third had already reached that stage.

The results of IDC's 2021 Worldwide Industry CloudPath Survey, specifically for the banking industry, showed that bank spending on cloud services is forecast to grow 16% a year to $77bn worldwide by 2024.


The difference between banking software operating in the cloud versus on-premises is that cloud software is hosted on the cloud service provider’s server and accessed via a web browser, whereas the on-premises servers are just that, situated at bank head offices and are owned and managed by the banks’ IT departments.


The benefits outweigh the drawbacks

Each of these two alternatives has its benefits and drawbacks but the tide is increasingly shifting in favor of cloud-based banking setups.

Cloud-based banking offers a long list of advantages. These include:

  • Cost-effectiveness

  • Scalability

  • Flexibility

  • Capacity for innovation

  • Always accessible, anywhere in the world

  • Security


The often-cited drawbacks of cloud-banking include:

  • Meeting and keeping up with stringent banking regulations

  • Limited customization

  • Lack of control

  • Transitioning from legacy systems


Cloud banking compliance race


Meeting the regulatory challenges of operating on the cloud versus on-premise is arguably the biggest hurdle to banks shifting completely over to the cloud. Financial services regulations are notoriously stringent because banks are looking after other people’s money, are obliged to maintain the privacy of their clients and their data and they bear the responsibility of preventing money laundering occurring in the formal banking system.


The regulations that cloud banking services need to satisfy are a mouthful of acronyms, including GDPR, soc2; pci-dss GDPR, CCPA, PIPEDA. In essence, financial services regulations fit into a few buckets: data privacy, money laundering and anti-terrorism funding, financial stability and market oversight.


There is a perception that regulators are resistant to banks shifting their digital operations and IT systems onto the cloud, given the risks and high bar they set for compliance. However, regulators are working hard to facilitate the shift.


According to Joasia E. Popowicz, in an article on the European Central Bank’s response to cloud innovation, last year the Bank launched a “state-of-the-art cloud-based digital Virtual Lab to fast-track innovations in European banking supervision.”

Deloitte says banks shouldn’t see regulatory requirements as a barrier to Cloud option, but rather as “a broad framework within which firms need to satisfy themselves (and their regulators) about the robustness of their Cloud strategies and arrangements.”

In January, Pentti Hakkarainen, Member of the Supervisory Board of the ECB, at the Institute for Financial Integrity and Sustainability, said: “Digital transformation is a must for banks. Changing customer demands together with pressure to reduce costs and increase efficiency are leaving banks with no option but to use modern technology.”

There is growing consensus regarding the significant benefits cloud banking can offer financial services institutions that are eager to innovate and use these platforms to remain agile in their responses to changing consumer demand and growing competitive forces.


How can Velmie help?


Against this backdrop, Velmie offers a competitive cloud banking architecture solution that is cloud agnostic and can be deployed to public and private cloud platforms, although we deliver most of our solutions on AWS banking architecture.


With microservices architecture and open banking APIs, our white-label platform provides our clients with endless scalability and agility.


Velmie also offers banks faster time-to-market with white-label online banking platform and pre-built frameworks, ongoing support and maintenance and compliant and secure technology.


Just some of the cloud banking development services we offer are:

  • Migration to the Cloud – We help financial institutions choose a provider to set up a bank’s cloud environment and manage the smooth migration of their data from their on-premises servers.

  • Ensure continuous compliance – our fintech and banking products are compliant with PCI DSS, GDPR, PSD 2, SOC 2 and other directives and, as products and legal requirements change, we ensure our products remain compliant.

  • Serverless computing – banks benefit from the decreased time to market, extreme scalability, and low cost of building and operating serverless computing.

  • Other development services include modernized cloud infrastructure, containerization, and automated deployment.


Conclusion

With the ever-evolving customer demands, banks that still operate on traditional infrastructure are facing numerous threats from new market players that leverage emerging technologies. To address these challenges, cloud-based banking software provides the foundation for a bank’s innovation and growth.


Cloud computing gives financial institutions infinite scalability and agility, decreases time to market, and enables infrastructure cost efficiency, security, resiliency and future-proofing.