The Next Big Thing: Cloud Computing
You know what to expect when you log on to Netflix, Amazon, or Uber. You want various good options tailored to you based on what you've done in the past. You expect a seamless payment choice. And you want a system that looks good, is easy to use, and fits your needs.
Many digital customers who have used open banking are looking for banks that can not only meet their needs but also do so quickly and in a fully tailored way; this could mean that there are built-in finance choices that make sending a payment as easy as sending a text message or that spending patterns are used to suggest ways to save money. Also, consumers are becoming more aware of how their actions affect the world around them, and they want banks and other service providers to help them reach reasonable social goals like sustainability.
Challenges and rivals
Existing banks no longer have a monopoly on financial services, which puts pressure on the sector to develop flexible goods and ecosystems that can meet a growing number of customers' changing needs and give them their unique experiences. Specialist, digital, and "challenger" banks, as well as third-party "fintech" (financial technology companies), are coming up with solutions, either in partnership with the "incumbents" or in competition with them.
As the market gets increasingly crowded, banks are being forced to rethink how to stay competitive and change how they create new products. Instead of building solutions before finding buyers in captive groups (their current customer bases), banks have to figure out what their customers need and then work backwards to find the best solutions; this is often called "front-to-back development," a process that is strengthened by outside forces like changing regulatory landscapes. To keep up with regulations, banks must be more flexible. And that means that foreign banks must meet different regional and national standards.
There are also new rules coming out about data. A lot of data is needed for the best experiences, whether preventing scams or making things more personal for the user. And as data sharing grows, from "open banking" to "open data," banks are dealing with another layer of complexity in their compliance processes.
Banks are generally under much pressure as they look to the future. These pressures can be summed up in four main goals:
Making sure security, compliance, and resilience are in place and that all world standards are met,
It is improving customer experiences in a market that is already full, making the best use of internal data by adding external data to it, and building a digital infrastructure from front to back.
Technical advances—what we'd call the fifth wave of technology in banking—offer clear solutions to these pressure points.
The fifth wave: using the cloud to do business
In the first wave of banking technology, tools like mainframe computers and card machines took over tasks that used to be done by hand; this technology was used to keep records, make general ledgers, and do calculations; this made it easier for banks to handle more significant transactions. In the second wave, minicomputers and terminal desktops were introduced, which made the branches and back-end processes even more efficient and automated. And during the third wave, when software became more critical, clients used networks to connect to banks running on computers.
The fourth wave was marked by the rise of service-oriented architecture (SOA) and object-oriented computing, which made it possible to create apps. Here, customer needs started to change the banking industry, with more and more people expecting to be able to do their banking through apps and other branded front-end features anytime and anywhere. During this wave, there was also a move towards software architectures that were more modular and flexible and could be used on a wide range of platforms.
This takes us to the fifth wave, which we're in now. All-in-one services like Amazon inspired it. Starting with the rise of cloud computing, which goes along with a more flexible, incremental style of software development, the fifth wave has seen the creation of marketplaces and ecosystems that bring together a variety of services and applications so that consumers and businesses can access a full suite of capabilities in one place.
The fifth wave of banking technology opens the way for a new, innovative era in which interconnected software can create seamless services by updating and tying together existing legacy infrastructures. This wave also makes it easier to connect and work together, and it makes new business models and chances possible.
Why use the cloud for banking?
In the past, bigger "high street" banks have been the only ones to come up with new banking technology (especially in the earlier waves), partly because they could afford to invest more. Cloud-based banking, on the other hand, with its low start-up costs, changes everything.
Cloud banking lets banks of any size get hosted computing services, like servers, data storage, communication tools, and apps, whenever needed. These services are delivered over the Internet. The perks of banking on the cloud, such as being able to scale up quickly, being more compliant, getting to market faster, and being easier to integrate, make the switch not only possible but also a good idea.
Compliance with regulations is enough to justify the investment. Cloud-based banking technology helps meet privacy, available finance, and jurisdiction-related regulations. Many cloud-based ecosystems already have controls in place to make sure that all goods meet all regulations.
Also, a bank can take advantage of these capabilities through a single ecosystem using a cloud platform with third parties and fintech already built in; this is easier than connecting with each fintech on old systems, which is a long and challenging process. And if a new fintech or challenger comes up with a good product, it can be added to the current suite of cloud banking services without going through another round of integration.
Lastly (regarding benefits), a bank can get new products on the market faster by giving a marketplace with a pre-integrated ecosystem. If a bank works alone to form a partnership with a fintech, the process can take months. However, if the bank uses a cloud-based banking system and its current marketplace, it can add a new partner or product in just a few weeks. In private banking, which is becoming increasingly competitive, this speed is essential when going head-to-head with competitors.
Cloud and available finance are a great pair.
Imagine you're a bank looking to get a small or medium-sized business (SME) to take out a loan. A few years ago, the SME had to go to a branch and hand over up to 20 papers in person. These papers include, among other things, a certificate of incorporation, tax records, and proof of address. They would be sent to the back office and credit department, where several formulas would be run on them. Lastly, a credit choice would be made based on the customer and the facility needed. The whole process takes more than ten days, on average.
With a cloud-based open-finance tool, the SME doesn't have to go to a branch. Instead, the SME is sent to a simple, branded page or a mobile app to start self-onboarding. They can put in basic information like a phone number or tax ID, which can be used by a third party (with their permission) to get more information, maybe from a government website. Then, using a simple API (application programming interface), you can get info that has been checked.
The process can also be made more prominent, meaning that data can be collected from different sources using different APIs and combined. An algorithm can then create a credit choice based on all this information. Approval can be given in an hour instead of 10 days, and the SME doesn't have to organise and hand over hard copies of any paperwork.
Think about the future.
The wave of new ideas sweeping the financial services industry won't stop. It's going faster as more banks switch to fifth-wave cloud computers. Cloud-based open-finance platforms will likely become the usual, and APIs and architecture will likely continue to break new ground and shape the banking services of the future over the next few years.
Quantum computing could solve problems and build methods that are too hard for current computer models; this could be done in the future and even be used to create the sixth wave of banking technology. Also, the rise of the Internet of Things (IoT) could make banking ecosystems even bigger and better for customers.
Whether Wave Six is an explosion of connected online services, wearable tech, or quantum computing, one thing is clear: cloud computing is the key to the future that banking badly needs.