How legacy banks can capitalize on the cloud’s potential

31 minute read 15 Nov 2019
Authors
Anita Kimber

EY – United Kingdom Digital and Innovation Partner

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.

Hamish Thomas

EY EMEIA Payments Leader and UK Advisory Banking Technology Leader

Transformation leader in payments and open banking. Passionate about technology’s potential to create opportunity and manage risk. Optimistic runner. Film enthusiast.

31 minute read 15 Nov 2019

Legacy banks have two main options for capitalizing on the cloud’s potential for the benefit of their customers and to remain competitive.

In a few years from now, there will be no questions asked about the logic of cloud migration — developing digital-native platforms will be the norm. Already, FinTechs and challenger banks are proving that cloud-based operations work — and customers like the accessibility, as well as the look and feel, of new service offerings. Traditional banks recognize the need to embrace banking in the cloud, in order to give their own customers the best possible service and remain competitive in the market. The benefits of cloud-native banking solutions are well established.

Although FinTechs and challenger banks have proven the concept of cloud-native banking solutions, traditional banks have found it harder to adapt. Long-standing brands with decades of organic growth often have complex legacy systems and operations. Transformation initiatives developed through a pure technology lens can underestimate the need for end-to-end coherence across both technology and operations. They can also underplay the need for control to address risk and compliance concerns of banking stakeholders.

Regulators across Europe are now taking a pro-cloud stance. New cloud-based applications must be subject to proper testing and controls, but banking in the cloud is increasingly recognized to be where the future lies.

Traditional banks have two main options for capitalizing on the cloud’s potential

  1. Firstly, they can launch their own cloud-native challenger, an approach already adopted by some large banking organizations. This has a number of attractions. The challenger bank is aimed at new customers, who may be offered a focused service — perhaps mobile-only and containing one or two banking products rather than the full suite. The brand power and resources backing this new offering may provide competitive advantage over competitors with no legacy banking history.
  2. The second approach is to focus on migrating one part of the bank’s operations to the cloud, such as the mortgage book or savings book. If successful, other operations can be moved to the cloud in a gradual, managed process.

Whichever approach is chosen, a successful move to banking in the cloud doesn’t start with the technology, but with an understanding of what the technology can do. Banks are eager to use technology to address business matters, but this understanding can only come from business stakeholders and technology providers.

Traditional banks may need to take a fresh look at how they develop new banking applications. This could involve establishing development teams that combine in-house and external resources to gain greater expertise in designing, developing, testing and rolling out cloud-native solutions.

Lessons could be learnt from other sectors. Within technology companies, for example, change is built into the system or the internal culture expects constant upgrades and improvement. From a longer-term cultural perspective, there is a sense that the traditional banking sector needs to change the way it thinks about and develops technology.

While banking in the cloud has been embraced by new challenger banks and FinTechs, it is a topic that still causes real angst at the executive level across legacy banks.
Anita Kimber
EY – United Kingdom Digital and Innovation Partner

Summary

Traditional banks recognize the benefits of cloud-native banking solutions and the need to embrace banking in the cloud to provide their customers with the best possible service and remain competitive in the market. In this article we provide two main options for legacy banks including areas to consider, in order to capitalize on the cloud’s potential.

Our report (pdf) provides a more detailed summary based on a client webinar we held in September 2019 with leaders from EY, Form3 Financial Cloud and Thought Machine.

About this article

Authors
Anita Kimber

EY – United Kingdom Digital and Innovation Partner

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.

Hamish Thomas

EY EMEIA Payments Leader and UK Advisory Banking Technology Leader

Transformation leader in payments and open banking. Passionate about technology’s potential to create opportunity and manage risk. Optimistic runner. Film enthusiast.