As banks adapt to changes in their competitive and technology environments, cloud computing will be an important tool. By driving down costs, enabling innovation and creating the flexibility to respond to change, cloud provides the right combination of qualities that banks need to compete and win.
The global banking industry is going through a lot of transformation. At a time of consistent structural change across the financial services industry, banks and credit unions face increasing challenges, including changing regulations, changing customer expectations, delivering integrated multichannel experiences and new competition from non-traditional players. Internally, banks are facing tighter budgets and continuous demands to reduce costs. So, banks are finding it really difficult to increase revenue at the pace they were achieving before the 2008 financial crisis.
To be more specific, US banks had a revenue-to-asset ratio of 7.3 percent before the crisis. It has now shrunk to 4.6 percent, losing 2.7 basis points. This ratio has stayed relatively consistent the last four years. And how are banks sustaining that rate? Cost management. Cost-to-asset ratio has been consistently declining the last five years, clearly demonstrating that cost management has become key to profitability.
Banks are responding to these challenges by investing heavily in technology and digital channels. A technology that can help banks reduce costs through improving operational efficiency, reduce the number of legacy systems and manage ever-changing regulations will prove to be a game-changer.
Cloud may very well be that technology. Not only does it help drive down costs; it also enables innovation and creates the flexibility to respond to change – the very combination of qualities that banks will need to compete and win in the future.
However, adoption of cloud services has been slow in banking, compared to other industries. Fears about security and regulatory compliance, reliability and interoperability have prevented some banks from moving ahead.
Still, it’s becoming increasingly clear that cloud’s many advantages for banks are beginning to outweigh the concerns, and adoption seems poised to rise. Results from the IBM Business Tech Trends study show that while banking is just “middle of the pack” in terms of deployment, the number of respondents experimenting with pilots is among the highest when compared to other industries. And adoption has grown substantially in just the last two years – from 44 percent in 2012 to 73 percent in 2014.
I’m eager to see the innovations banking industry leaders will bring to market over the next two years. I suspect many of them will be delivered via cloud and not through heavy investments in dedicated hardware, software and related manpower.
For more information about industry adoption, investment and skill levels for cloud computing (and mobile, analytics and social technologies too), check out the IBM Business Tech Trends industry dashboard.