When it comes to general cloud adoption, the UK ranks sixth in the EU with 41.9% of enterprises — with at least 10 employees — purchasing cloud computing services, according to statistical office Eurostat.
However, when it comes to banking, only 30% of financial institutions in the UK have moved to payments or collaboration in the cloud, according to research by Finastra.
In both Singapore and Germany, 42% of financial institutions have made the switch, while 41% of firms in France have moved to the cloud.
In light of this, Specialist Banking asked those in the cloud banking industry whether the UK was making progress with regard to this form of technology and why some banks may be reluctant to adopt it.
Adopting cloud banking
“Despite the clear appetite for cloud-first strategies in the banking sector, actual adoption is relatively slow,” said Paddy Fitzpatrick, general manager for cloud business at DXC.
“Projects are too often treated as technology initiatives rather than business change programmes, so early progress quickly slows when making the business case for comprehensive change.”
Mary Connor, director of product management, retail banking at Finastra, claimed that it was evident that UK banks had considerable ambition to switch to cloud-based banking in the near future and a number were getting involved in discussions about moving their core services to the cloud.
An example of this was Lloyds’ partnership with Thought Machine to accelerate the digital transformation of the bank’s business, whereby it planned to move 500,000 of its customers’ data to the cloud using Thought Machine’s cloud-based, core banking software.
Mary said: “Moving forward, we expect to see more UK banks moving select core services to the cloud as fears around its use abate.
“For example, PwC has predicted that we may see areas such as credit scoring and consumer payments implemented on the cloud by as soon as 2020.”
Michael James, head of technical architecture at Altus, stated that while fintech take-up in the UK was high, cloud banking as a main account was still quite low, with people preferring to wait for their incumbent bank to provide a digital service.
“This trend may reflect the equivalent cloud adoption as many of the fintechs are cloud based.”
Gareth Williams, CEO at cloud management platform YellowDog, claimed that although it was based in the UK, it was finding that European and US banks were more willing to work with it in the immediate term.
“I’m putting that down to the extra level of complexity there is in the UK at the moment around Brexit, and [UK banks] seem to be sort of slightly more risk averse than others in the industry in Europe and the US right now.”
“Generally, we see that there is a reluctance to move to full cloud adoption due to both an over estimation of the risks and, in some instances, a lack of clarity from the regulators,” said Michael.
“One of the key blockers to going full cloud above the infrastructure layer is having control of the application beyond the relationship with the cloud supplier.”
Sam Gormley, founder of Osaka Labs, explained that security was a major consideration, as was resilience.
“If you don't own the systems and there is an issue preventing a core function happening, then the bank is limited in resolving that issue and dependent on the cloud provider.”
He claimed that, currently, there was a limited number of cloud providers that could offer a satisfactory service.
“If all banks had all their platforms run by Amazon Web Services [AWS] and something happened to AWS, there [would be] serious implications,” Sam continued.
“Although the idea of outsourcing a lot of the pain [that] managing and building your own infrastructure brings, it also means you have no say in how this is set up.
“If you need something your provider cannot offer or a bespoke solution, you are at the behest of the cloud service [provider].”
Roger Vincent, chief innovation officer at open digital banking platform Trade Ledger, claimed that the adoption of cloud-based technologies in UK banks was somewhat inevitable, but it had taken time to get the right people, processes and partnerships in place to truly start leveraging the power of these services.
“Cloud-based technologies should be integral to a bank's long-term transformation strategy, but concerns over data security, lack of the right engineering talent, and a historic inability for banks to partner with smaller technology firms have held them back in the short term.
“New banking-as-a-service providers are bridging the technology gap between legacy core banking systems, third-party fintechs and the bank's customers.
“Once banks become comfortable with this new operating model, the impacts on the end-to-end customer experiences they can deliver will be huge.”
How does cloud banking help to improve the journey for the end user?
Cloud banking can provide a more agile way of delivering financial services to customers.
“It allows for the rapid integration of multiple specialist service providers via APIs, opening up new product and service innovation opportunities,” explained Roger.
“New, connected eco-systems of cloud service providers mean banks can deliver their enhanced products and services to their customers wherever they are, including financial brokers.”
Andrew Reeves, managing director at Temenos Cloud, stated that end users benefited “enormously” from access, at their convenience, to services through digital channels.
“Financial institutions, for example, benefit from being able to innovate at speed, as well as launching and learning from new services.
“Cloud technology provides the secure, elastically scalable and flexible platform from which banks can quickly achieve [new] digital outcomes.”
Chris Archibald, head of digital at specialist financial services consultancy TORI Global, said that banks were becoming unrelenting in their focus on positive customer experiences.
“Cloud banking — among other things — is certainly a facilitator towards this end.
“There are three key areas where cloud has improved customer experience: availability, agility and integration.
“The cloud has enabled businesses to be far more agile than ever before; rapidly iterating and deploying new features that ultimately keep them ahead of their competitors and improves the customer’s experience.”
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