Borrow
Why cloud is the future for banks
The rise of neobanks, alternative finance providers and a vibrant fintech start-up scene in Australia and New Zealand is driving significant investment in cloud-based infrastructure for traditional banking institutions. Our recently launched Culture of Innovation Index found that at a global level 92 percent of corporate banks are either already making significant use of the cloud, or planning to make further investments next year. Locally, banks are expected to invest 5-10% of their resources in cloud-based services in 2020, a figure that continues to grow year-on-year.

Why cloud is the future for banks
The rise of neobanks, alternative finance providers and a vibrant fintech start-up scene in Australia and New Zealand is driving significant investment in cloud-based infrastructure for traditional banking institutions. Our recently launched Culture of Innovation Index found that at a global level 92 percent of corporate banks are either already making significant use of the cloud, or planning to make further investments next year. Locally, banks are expected to invest 5-10% of their resources in cloud-based services in 2020, a figure that continues to grow year-on-year.

Banks realise that the cloud enables them to offer new services to their customers, improve overall customer experience and react to market demands more quickly. Coupled with the understanding that cloud and hybrid cloud environments can be configured to meet the required regulatory and security standards, banks realise that cloud capabilities are becoming table stakes for financial institutions that are looking to innovate.
Better customer experience through faster deployment
Mobile commerce and seamless digital customer experience have become central to business success in the past ten years, with consumers and merchants expecting real-time service and intuitive usability. Neobanks and fintechs – most of which were born on cloud infrastructure and focus heavily on user experience – are challenging the big four, adding further pressure on the incumbents to innovate and add value for customers.
Incremental improvements or minor value-added services, such as offering basic spending insights and categorisation, is no longer a unique selling point for customers. Banks need to think bigger about the services and tools that will be true game-changers. For example, data-driven insights can be used to provide timely notifications to customers about their spending habits, helping them to stay on budget.
It’s important to remember that entering the cloud is the means and not the end – however it’s the first step on this journey towards improved customer experience. Banks can reallocate time and resources that were traditionally spent maintaining IT infrastructure to activities that will delight customers. It also enables greater collaboration with fintechs and startups, streamlining IT integration through the use of Application Programme Interfaces (APIs) that fintechs can connect to more easily. This enables banks to offer a greater range of complementary services that strengthen both parties’ collective offerings.
Streamlining operations and scaling for agility
Banks traditionally run their own data centres which can be costly, resource-intensive and difficult to scale.
To illustrate, imagine a scenario where a bank is looking to expand operations into a new country or territory. Historically, banks would look to buy new data centres to ensure their network could handle peak demand. However, banks were spending millions of dollars to run and maintain data centres that are only partially utilised. Further scale had to be built into these operations, which may not be achieved in the short term.
This model of operation is highly inefficient, as the infrastructure needs to be ready to handle peak demand from initiation onwards, even if the volumes are usually significantly lower.
Using the public cloud’s ‘operating expense’ (OPEX) model, where services can be scaled up and down according to demand, provides much greater flexibility and cost optimisation. This model also empowers banks to focus resources on customer experience innovation and quicker product iteration, rather than backroom maintenance.
There has been some initial hesitation on the part of banks to adopt the cloud as it requires moving sensitive data to a new environment, which is perceived as opening up security vulnerabilities. Importantly, regulatory bodies needed to be engaged to ensure compliance of these systems. However, banks increasingly understand that the big cloud providers spend more on security than banks could on their own. And these cloud providers can also engage national regulatory bodies and provide a holistic view, based on their experience in a range of markets globally. Furthermore, hybrid cloud environments, which combine the benefits of a public and private cloud, allow institutions to leverage a ‘best of both worlds’ approach.
Adopting the cloud enables banks to offer better user experiences, increase the pace of innovation and streamline operational cost: essential ‘must-win’ areas for banks with the rise of nimble neobanks and agile fintech startups.
By: Phillip Finnegan, Managing Director – Pacific, ACI Worldwide

Banking
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more

Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more

Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more

Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more

Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more

Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more

Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more

Banking
Big bank-backed start-up raises $12.75m
A landmark fundraise by Australia’s biggest banks has secured a war chest of $12.75 million to the sector’s blockchain consortium, Lygon, to bolster its research and development into helping banks...Read more

Wrapping up an eventful 2021
Listen now

What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now

Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now

Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now

Banking
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more

Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more

Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more

Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more

Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more

Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more

Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more

Banking
Big bank-backed start-up raises $12.75m
A landmark fundraise by Australia’s biggest banks has secured a war chest of $12.75 million to the sector’s blockchain consortium, Lygon, to bolster its research and development into helping banks...Read more