BY Andreas Bubenzer-Paim Head of Technology Banking, Bank of the West

Sep 22nd 2021

Financial PerspectivesCFOs and TreasurersIndustries

Why Every CFO Should Want Their Company Banking in the Cloud

The industry is overcoming security and privacy challenges to embrace cloud-based services.

Sep 22nd 2021

For generations, commercial banking was constricted by legacy systems, segmented databases, and the dominance of branches.

No longer. Banking operations are increasingly expected to be seamlessly available at the press of a button. With the added pressures for remote working, customer-facing software, and heightened risk mitigation, the industry’s need for innovative solutions has become even more pressing.

For any corporate finance leader who keeps tabs on the finance industry and the evolution of banking services, cloud-based banking has quickly gone from a topic of interest to a must-have.

Banks are moving increasingly to the cloud in the hopes of delivering products and services to their corporate clients with the same agility, speed, and innovation found in the technology sector.

Benefits of Embracing the Cloud

From account maintenance and loan applications to automated reporting and cash flow management, clients want banking relationships that are not just defined by basic services and physical branches and offices, but by remote capabilities, integrated processes, and flexible systems.

The benefits are increasingly evident, such as enhanced customer satisfaction, faster product development, and more agile systems scalability. The move to the cloud can also introduce important capabilities to access and mine data more prolifically, as well as provide opportunities for significant cost reductions through automation. Globally, these advantages are expected to push spending on cloud computing to $332 billion in 2021, a 23 percent increase from $270 billion in 2020.

The move to the cloud can also introduce important capabilities to access and mine data more prolifically, as well as provide opportunities for significant cost reductions through automation.

For us, the reality of this cloud-enabled agility was driven home in early 2020 with the introduction of the federally funded Paycheck Protection Program, which aimed to provide small businesses with critical funding at the onset of the COVID-19 pandemic. Installing a new loan application process into our systems, testing, adjusting, and launching the program was an enormous task. By working around the clock, we were able to get up and running in 36 hours—a feat that would’ve been unthinkable if we were not running on the cloud.

Challenges of Moving Too Quickly

Migrating sensitive functions and data within a financial institution, however, is not a simple undertaking.

Ensuring operational security while upgrading legacy systems is a difficult—and frequently costly—endeavor. Internal systems installed independently over the years, as well as concerns about protecting both customer and institutional data, have forced commercial banks to proceed more slowly and carefully than other technology-led industries.

Many in the industry have remained reluctant to rely heavily on the public cloud. Indeed, a 451 Research survey at the start of 2019 found that only 18 percent of financial institutions had broadly deployed cloud services. In such a highly regulated industry, transferring risk to a third party is always a concern, as data security issues surrounding transfer of information are paramount. Although a global repository for all customer data might be a bankers’ dream, regulators remain understandably concerned about the location of data and maintain tight restrictions regarding the residency of customer data and its cross-border transfer.

For reasons of both control and security, many institutions restrict the placement of data, applications, and other software programs to the bank’s private servers. By embedding their digital operations in an onsite, organization-specific cloud, banking companies can help ensure the strict security that is required to protect financial data and customer information while providing developers and product managers greater flexibility.

This approach can work well if the institution is well-funded and maintains a large IT department of developers and programmers—and can afford the flexibility needed for storage capacity.

Cloud Banking Aligns with Fintech

For other institutions, a move to a public or hybrid cloud platform—combining private and public cloud—provides a more robust solution. Although even the thought of placing your banking operations in a public cloud was taboo just a few years ago, providers today, such as Amazon, Google, Microsoft, or IBM, can often provide greater security, storage, and innovation through a white-label solution.

Few of the recent advances would be possible without the new flurry of fintech entrepreneurs. Customer relationship management, content management, and document management are among the processes that have been moved outside institutions’ legacy systems thanks to a surge of new companies helping unbundle traditional banking operations.

Rather than viewing these fintech upstarts as competitors, banks would be better served by accepting them as innovative colleagues that can effectively augment an institution’s internal resources.

For example, our commitment to economic and environmental sustainability recently led us to team up with the Swedish fintech company Doconomy, which has a solution that analyzes consumers’ transaction history to estimate the level of carbon footprint that each transaction creates. Its system uses measures based on the merchant, their location, their merchant category code, and the value of the transaction, among other things.

Rather than viewing these fintech upstarts as competitors, banks would be better served by accepting them as innovative colleagues that can effectively augment an institution’s internal resources.

By accessing the company’s solution in the public cloud rather than developing it in-house, we were able to create the 1% for the Planet account and offer our customers a mechanism to understand their real-time impact on the world. Even as a large banking company with deep IT resources, this achievement would have been outside our current scope for purely internal development.

Accelerating Transformational Change

For years, every banking company has recognized that customers—both consumer and commercial—increasingly rely on digital access to their financial products. With the recent pandemic, however, the acceleration of these efforts has been extraordinary.

Whether it was moving an array of digital transformation projects forward on our internal list or simply adopting the acceptance of DocuSign systemwide, remote access to files and processes meant business survival. Having the ability to innovate and launch new products without the expense, time, and risks associated with on-premises development has been key.

For the industry, the rapid development of cloud capabilities made it possible. There is no reason to believe it will slow anytime soon.

Disclosures

The 1% for the Planet account is the Any Deposit Checking account that donates 1% of the net revenue of the account to environmental nonprofits through the 1% for the Planet organization. Net revenue is generally defined as all fees charged to the account, plus interest income earned by the Bank on this account, minus any losses, debit card revenue and reversals. To view the complete definition of net revenue, please visit the product disclosures here.

The carbon tracking tool, which will appear in the Bank of the West Mobile app for 1% for the Planet account, uses the Åland Index, a cloud-based service for carbon impact calculations, to provide a measurement of the potential carbon impact of purchases made with the 1% for the Planet debit card. The calculation is based on the merchant code, a code that indicates the types of goods or services a company provides, and the amount of the purchase. The actual carbon impact may be higher or lower than the measurement provided. Bank of the West licenses the Åland Index through Doconomy. Bank of the West does not control or guarantee the accuracy of the information provided by the Åland Index and makes no representation or warranties regarding the service.

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