Cloud the key for APAC banks’ digital transformation

Kanv Pandit May 19, 2022 09:51

Throughout the pandemic, millions of consumers in APAC having shifted from in-branch transactions to online or mobile banking. While initially this shift was born of necessity, it resulted in droves of customers discovering the speed and convenience that digital banking offers.

Many banks diverted investments from their branches to digital initiatives and overall banks performed heroically and offered a financial lifeline to people and businesses, exactly when and where it was needed. Technology, which pioneered new ways of working, clearly played a major role.
Now that digital banking has become mainstream, customers have greater choice than ever before. They also have high expectations and will shop around for financial products and services that meet their specific needs. As such, it is more important than ever for banks to embrace core modernization.

In APAC, new challenger banks that are extremely tech-savvy, innovative and agile are entering the market. In Hong Kong, the eight digital banks collectively had 1.1 million accounts at the end of September last year. Unburdened by legacy technology and legacy thinking, they have redefined customer experience by becoming cloud native, data-driven and futuristic.
Meanwhile, incumbent banks often struggle with monolithic technology stacks and outmoded methods. They must now respond quickly, moving straight to digital and embracing the cloud – before getting outpaced by new fintech solutions from outside the traditional banking model.

Cloud native and digital-first

Although not synonymous, cloud and a digital-first strategy are inextricably linked. Applications that are not cloud native tend to be inherently clunky, inflexible and have limited potential. Conversely, cloud-native applications are normally designed to run in an infrastructure as a service (IaaS) environment, which is stateless and technology independent. Cloud also enables the use of modern methods, such as DevOps and microservices. These are real game-changers that expedite development, provide freedom to innovate, and flexibility to accommodate change.

The cloud also brings other immediate business benefits to banks. Internal cost savings can be made, with a cloud solution consolidating several stand-alone applications and reducing high maintenance costs. The scalable infrastructure supports organic growth for banks and ongoing regulatory and compliance changes can be adapted too.

While there have been concerns in the past about the security of cloud, there are now solutions that offer the latest advancements in cloud security, monitoring, resiliency, and operational analytics.

In short, cloud empowers banks to move away from the hindrances and expenses of legacy infrastructure and transform into an agile, efficient and digital-first institution.

Modernizing the core

With so much on offer, why have banks taken so long to embrace cloud? Banks which are still reliant on legacy systems often cite the high costs of transformation as one of the main reasons for holding back, along with any potential disruption caused by switching, but the pandemic has changed consumer habits for good and banks can no longer wait.

Banks are already starting to use the cloud for peripheral applications, like content management and customer relationship management. However, true modernization starts at the core, and then builds up and out from there. A bank’s core banking system constitutes the heart and backbone of its IT infrastructure and perform mission critical operations– processing accounts, loans, payments, and securities.

Migrating ‘core banking’ to the cloud is essential to reap the stellar benefits of modern technologies – AI, machine learning, data analytics, etc. – all of which enable banks to build a better, more dynamic and personalized customer experience.

Some banks may try to skate by with a mobile app stacked on top of aging and inflexible technology infrastructure. The simple fact is that aging architecture cannot flex. Eventually these banks will experience issues similar to those of organizations that don’t modernize at all. Banks should start from the bottom up, reinventing their core and launching digital-first, customer-first initiatives throughout their business models, technology stacks, software solutions, strategic plans, and more.

Meeting customer demands

In the digital age, technology is no longer limited to processing – it determines the customer experience and how your brand is perceived. To win new customers, it is critical for banks to be offering a compelling customer experience from the get-go. Just like any other business, banks must seek ways to not only meet current customer wants and needs, but also to anticipate and address future requirements as, or even before, they arise.

Increasingly, the younger generations are becoming a crucial demographic to consider when determining what next-gen banking looks like. As this BCG research points out, digital banks Revolut and KakaoBank focus on serving the millennial segment, with strong personal financial management (PFM) tools assisting with budgeting and saving. Additionally, UOB’s TMRW is a mobile-only bank designed to tap into the millennial segment of emerging banking markets.

The new generation of consumers are digital natives that prioritize fast, seamless, always-on banking experiences. Hence, digital and mobile tools are the new baseline for banking service, and no longer just a ‘nice to have’.

Banking on the cloud

Leveraging cloud for bank modernization has become a strategic imperative. Banks need a cloud-enabled core that enables them to process in real-time and operate in a customer centric model so that they can interact with customers through all channels, 24/7.

Public cloud infrastructures are increasingly vital to facilitate the shift in core banking, such offerings can help meet the demands of organizations wanting to deploy and easily expand their solutions across markets and verticals. There is no doubt that cloud will be a gamechanger for APAC banks’ digital transformation.

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Kanv Pandit

Group Managing Director, APAC, Banking Solutions at FIS