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Digital transformation fatigue? The cloud is the cure

This past year, the financial services industry has experienced disruption on an unprecedented scale. The pandemic was devastating to lives and the economy, but it also forced sweeping changes throughout the industry, forcing banks to adapt and embrace a more agile, customer-centric environment. Banks have made tremendous strides and most, if not all, recognize the urgency in digitizing processes and procedures. According to a recent McKinsey study, COVID-19 accelerated the digitization of customer interaction by an average of three years and the share of digital offerings by seven years.

However, innovation is not instantaneous and a sense of “digital fatigue” is emerging as institutions pursue transformation strategies only to encounter setbacks and disappointments.  In the short term, banks were able to layer digital features on legacy systems; however, this is proving to be unsustainable. Anchored by antiquated technology foundations, banks are now struggling to keep pace with rapidly changing customer demands and expectations.

The push to digital has made it very clear that for banks to effectively compete in a digital world and avoid being bogged down by legacy technology, the move to the cloud is paramount. While the emerging wave of core service migrations is an outgrowth of these factors, there is a more potent push behind the shift. In short, it’s a movement whose time has come.

Mainframe migration

Like so many other factors in financial services, the migration to the cloud was happening before the pandemic, but similar to digital, it has now also been supercharged. In the cloud’s early days, if a financial institution wanted to take advantage of cloud flexibility, it needed to build its architecture, platforms and services. For all but the largest banks, it was a cost-prohibitive undertaking. The public cloud addressed these concerns via third-party providers that in essence, began offering shared cloud space, allowing financial institutions to migrate with lower costs. Cloud providers have made significant investments to mature offerings, including advancements in security, risk, regulatory, technology, commercial models and operational best practices, gaining confidence from all stakeholders, including regulators.

At a time when banks are facing unprecedented competitive pressures, the cloud offers a means to respond forcefully. It is now clear that cloud migration is fundamental to digital transformation and banks are going all-in on cloud mainframe migration.  Accenture’s Banking Cloud Altimeter report indicated that 82% of North American banks have moved enterprise functions, such as finance and accounting software, to the cloud. While it’s a bold move for an industry that was once cloud-adverse, cloud adoption hasn’t stopped there.

Today, there is a visible appetite as institutions aim to realize the inherent agility of cloud platforms and the need to prepare operations for a fast-paced and ever-changing future. Improving the customer experience is one of the primary drivers for this transition, but perhaps more importantly, it provides increased speed and agility, improves security and reliability, and enables banks to respond to changing market conditions by launching new features, capabilities, products and services to help them grow and differentiate in the market.

Agility and scalability

The cloud provides digital agility, enabling banks to adapt to consumer demands, seize new market opportunities and react to market threats and competition. Unburdened by legacy systems, banks that have migrated to the cloud can quickly launch new and innovative offerings to engage existing account holders, as well as attract new, prospective customers.

By moving mainframe services to the cloud, banks can respond with more agility to changing market forces as they connect fit-for-purpose applications from multiple providers to deliver the best-in-class customer experience. The cloud also allows financial institutions to achieve these goals with less risk and at a far more rapid pace. According to Accenture, 73% of banking executives who responded to their survey expect a rate of return of up to 15% and 76% expect to achieve it within 18 months.

Faster time to launch puts financial institutions on a more rapid and direct route to profitability and cost savings, allowing for a quicker return on investments within a robust and adaptable operating environment.

Scalability and elasticity have also proven to be key success factors for banks in the fintech era. Cloud-native infrastructures are enabling banks to innovate faster and more efficiently, while still maintaining excellent customer service. The cloud has proven to be a key enabler for an international expansion strategy, providing institutions access to new markets or segments that were previously unattainable., Cloud-based models enable a more risk-adjusted use of resources, reserving investments to scale when there is market validation. With the cloud, infrastructure can be transformed immediately, and in turn, make a significant impact from time to market, cost reduction or digital adoption. Cloud-native digital banking platforms provide institutions leverage via flexibility, on-demand capacity and speed.

Conclusion

It has become clear that digital transformation is an ongoing journey and not simply a destination. As the world continues to rapidly transform, institutions cannot afford to be reactive, but rather must be proactive in preparing for the future. Over the last couple of years, the cloud has gradually transformed from an innovative concept to now becoming the backbone and paving the way as banks and financial institutions continue to aim to re-invent and improve the customer experience.

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