Cloud the key for Australian banks’ digital transformation

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Cloud the key for Australian banks’ digital transformation
Bank modernization and transformation leveraging cloud isn’t building a wistful “castle in the sky”, it’s become a strategic imperative.
Photo by Erol Ahmed on Unsplash

Throughout the pandemic, consumers of all ages have developed a strong appetite and aptitude for using digital banking services.

Australians have shifted from in-branch transactions to online or mobile banking. This is likely to be a lasting shift, as only 7 percent of consumers indicate they are gradually returning to their “old ways” of banking, according to FIS’ latest PACE report.

As such, it is more important than ever for banks to embrace digital and modernization. And the time is now – before getting left behind and outpaced by new fintech solutions from outside the traditional banking model.

New challenger banks that are extremely tech-savvy, innovative and agile are entering the market. 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.

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 solutions that now offer the latest advancements in cloud security, monitoring, resiliency, operational analytics and regulation. Cloud also allows for multi-deployment options, from hybrid to hosted to full software as a service (SaaS) models.

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 – artificial intelligence, 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.

As FIS’ PACE research shows, nearly 1 in 3 Australians started using a new bank in the past year. 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. They are leading the charge and the quickest to make changes to their financial habits. Having shifted to online and mobile banking, the PACE research indicates only 2% of Gen Zs and 4% of young millennials said they will be returning to conducting transactions in branches – compared to 13% of boomers. 89% young millennials own a mobile wallet, versus 35% of boomers. Amongst the young millennials who own one, 99% have used it in the past 30 days.

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

Bank modernization and transformation leveraging cloud isn’t building a wistful “castle in the sky”, it’s 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.

Cloud is a gamechanger and to facilitate the shift in core banking, Australia’s cloud infrastructure will need to continue to grow, and as it does cloud will become the key to Australian banks’ digital transformation.

Adrian Toynton is Head of Banking Solutions, APAC, FIS.

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