Why increasing cost pressures mean banks need to put their ‘head in the cloud’

Why increasing cost pressures mean banks need to put their ‘head in the cloud’

Vikas Srivastava

Chief Revenue Officer at Integral

Views 524

Why increasing cost pressures mean banks need to put their ‘head in the cloud’

23.01.2020 10:45 am

It’s true that banks are having to do more with less budget. Recent headlines have demonstrated we’re currently operating in an increasing cost pressured environment. The solution for some banks has been to cut costs through staff reductions – but is this always the right answer?

While it’s important to run the lightest ship possible, cutting staff may result in cutting the bone rather than trimming the fat, which could be damaging for a bank’s operations in the long term. Instead, to stay within reasonable budget constraints, banks of all different sizes should consider adjustments to their technology strategy.

In-house technology investment is a strategic area where the largest banks may spend more than a billion dollars annually. They are willing to invest in technology because they know that this is how client demands are met, how risk is optimized, how market share is won, and ultimately, how profit is made.

What does this mean for other banks who don’t have the same budget to build their own in-house technology? Even if they pursue the build in-house route, systems require constant upgrades to keep up with the market. Those who run out of budget for continual enhancements will find they can no longer run their businesses and workflows efficiently and profitably on legacy systems. Without the same level of ongoing IT investments, how much more will their in-house technologies fall behind over the next 2-5 years, and how do they keep pace with client demands as well as bank competition?

On the surface it might seem like smaller institutions are in a catch-22 situation, but they’re not. It should come as no surprise that the answer lies in the cloud.

Cloud computing offers a business model with virtually no fixed costs, no CAPEX, and the built-in flexibility to customize according to your business needs. Banks can avoid the initial costs of implementing their own technology stack and eradicate the ongoing costs associated with maintaining, managing and updating their pricing and distribution systems.

Those who find themselves in the position to decide technology spend may worry about the idea of using an out of the box cloud system. After all, there are always workflows that must be tailored and made bespoke to accommodate both your existing front-end business practices and back-end processes, as well as your future vision for those things.

A well-architected cloud technology will provide infinite ways to customize a bespoke system, and do so efficiently – no custom build required. What’s more, the unique architecture of cloud enables a valuable feedback loop, wherein user demand for a new dial or functionality can be quickly actioned and deployed across the entire user base, resulting in a more comprehensive stack and further opportunities to customize through configuration.

In any case, it’s good to remember that customizing features and finish on a car is vastly different from reinventing the wheel (and the engine). Building from scratch opens up the potential for unnecessary complexity and increased exposure to technology and business risks.

The spoils will ultimately go to those who can improve cost efficiencies, manage operations intelligently and quickly expand their reach to optimally engage clients. Embracing a cloud-based system brings the opportunity to maximise profits and potential. Firms must make adjustments to their strategy to make their technology competitive. If they don’t, they risk facing the blunt instrument of across-the-board cost cuts, which often means letting go of talent and experience that may be very difficult to replace further down the line. 

Latest blogs

Jonas Andersson Fingerprints

In Consumer Biometrics We Trust: Authentication For the Data Privacy Age

Data privacy is high on the global agenda. In the wake of data protection policies such as Europe’s GDPR, ensuring the integrity of personal data is an increasingly pertinent subject. This is a governmental and corporate policy reflection of the Read more »

John Burgos Mindgate Solutions

Overcoming anxiety around mobile payments & digital payments - In the South Asia Pacific

Innovation and technology usually go hand in hand.  Therefore, for innovation to be fully realized, the technology that enables the innovation must be adopted as well.  During the last 5 years, we have had innovations from Google, Apple, Read more »

Stuart Robertson iDelta

Finance Sector PLCs Hold the Key to Economic Recovery

We have started to see the devastating impact the Coronavirus will have on our economy.  The travel, leisure and hospitality industry redundancies are rapidly mounting up with restaurant and bar owners facing no option but to shut up Read more »

Hirander Misra GMEX Group

Are UK Banks profiting from the current coronavirus crisis and failing SMEs?

A UK business could be eligible for a Coronavirus Business Interruption Loan Scheme (CBILS), as set out by the UK Government. However, it appears that despite the Government’s best intentions, this scheme is not working in practice and some urgent Read more »

Otabek Nuritdinov Safenetpay

A strong fintech needs more than just access to funding

  Investors, both private and institutional, are excited about investing in fintechs that are in the payments services business. What are the issues that really should matter to you, as a client? In 2019, institutional investors Read more »

Related Blogs

Hirander Misra GMEX Group

Are UK Banks profiting from the current coronavirus crisis and failing SMEs?

A UK business could be eligible for a Coronavirus Business Interruption Loan Scheme (CBILS), as set out by the UK Government. However, it appears that despite the Government’s best intentions, this scheme is not working in practice and some urgent Read more »

Marcus Vinicius Martinez CGI

Hyper-Casual Banking

If you own a smartphone, the chances are you have at least one gaming app installed. You know, for those rare moments when you have a few minutes to spare and just need to switch your mental focus. However, with the ever-increasing power of Read more »

Danny Healy MuleSoft

The 'Lego-ification' of Banking IT and the Rise of Digital Finance Ecosystems: Four Priorities for Banks in 2020

The advent of the open banking era and continued emergence of fintech has forced customer experience up the banking agenda. According to McKinsey, of the 50 largest global banks, three in four have now pledged themselves to some form of customer Read more »

Claus Christensen Know Your Customer

Is business banking ripe for FinTech disruption?

There are always many reasons one might want to organise a trip to Paris. For the last couple of years, the Paris FinTech Forum has become another one of these reasons. First launched in 2015 and hosted in the charming Palais Brongniart - the former Read more »

John Phillips Zuora

Subscription Services and the Race Towards the Future of Banking

In the not too distant past, we would sign up for a current account post-school or university and still be carrying around the same worn debit card in our 30s and 40s. With very little differentiation between retail bank offerings combined with Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel