The new rising trigger for banking to move to the cloud

Cost-saving has been one of the top reasons for banks to move to the cloud, but cloud adoption in financial services has far from peaked. The triggers for financial institutions to move to the cloud, especially for mission-critical workloads, are growing and their importance is changing. This mindset shift is discussed, and three different examples are highlighted.

Bankers are more than ever convinced that their business is all about data innovation. A McKinsey study[1] shows that banks remain trusted to carefully handle data, both now and in the future, more than other sectors such as telecommunications or e-commerce.

If banks are serious about surviving and thriving, they need to grab the opportunity to innovate securely, as they are still the prime custodians of data and still maintain an edge in customer trust.

The opportunity in financial services to shift towards becoming a Data Innovation Center is up for grabs. During all the years that I am focused on Fintech and disruptive technologies, the predominant banking belief was that innovation implied a security trade-off. As a result, a lot of banking innovations from incumbents didn’t dare to go behind the scenes where business-critical banking workloads resided. The dichotomy between Data Innovation and Data Security was a given amongst most incumbents.

As a result, most banking data remains on-premise to date. Accenture reports a staggeringly high percentage of 92%! Core-banking workloads and payments are processed on on-premises servers and only 3% is on the Cloud! [2]

Moving data and data-intensive business-critical banking workloads to the cloud is the foundational step towards Data Innovation. The pandemic and the growth of cloud-native Fintechs (in payments, core banking, Regtech, lending, investing, etc.) have largely changed the mindset of incumbents. They now see Data Innovation as the way forward for their business and they don’t hide anymore behind the excuse of the Data Security tradeoff. The dichotomy is dead.

Recent worldwide cloud surveys indicate that cloud adoption for mission-critical workloads is reaching a tipping point. Security improvements and increased data breaches are top reasons to move to the cloud for nearly 1/3 of banks globally, according to the latest IDC CloudPath report for banking.

What a mindset shift!

These are the new triggers for banks to move to the cloud. Security and reduction of data breaches are at the same level as multi-region compliance (for non-local banks) and just below business agility and resiliency (38% versus 31%-32% for the other triggers).

I spoke to Rik De Deyn, Senior Director of Financial Services Strategy at Oracle, to get color from him, listening to their banking prospects and clients. Oracle Cloud has always had a focus on mission-critical workloads and is seeing interest from financial services market players to move to the Oracle Cloud because of resilience and security. Their offering has baked-in compliance and security policies to accommodate banking clients’ needs to innovate securely. Rik also highlighted the cost challenges that banks continue to face, as an additional incentive to move to the cloud and improve economics. Oracle continues to innovate by introducing hundreds of innovative services and features and solid support for hybrid and multi-cloud architectures to meet the market needs of top-tier financial institutions. The Oracle Cloud Infrastructure (OCI) has increased its ranking year on year in the 2021 Gartner Solution Scorecard (78% overall score in 2021 from 62% in 2020).

The example of Deutsche Bank`s recent decision to move more than 40 petabytes of data from on-premise Oracle Databases to the Oracle Exadata Cloud@Customer, is indicative of the trend[3]. Streamlining global business data, reducing significantly costs, to set the foundational layer to innovate, is part of the turnaround strategy of the new CEO Christian Sewing. As a large incumbent, I can imagine that Oracle`s focus on baked-in security was a significant factor in Deutsche Bank’s choice of cloud vendor. Oracle also prides itself on its disaster recovery approach of dual data centers in each geographic region.

BBVA, a long-time incumbent innovator that proudly calls itself ‘the digital bank of the 21st century,’ leveraged the capabilities of Oracle Cloud to improve customer experience globally. In collaboration with Oracle Cloud, the Oracle Visual Builder, and Oracle Machine Learning, BBVA created BELA, short for Behavioral Economics Learning Algorithm.

BELA focuses on new ways of using artificial intelligence in Digital Marketing. BELA enabled BBVA to launch marketing campaigns across different geographies, without the need for time-consuming opinion polls and pre-testing. These machine learning-based marketing campaigns resulted in a 30%-40% improvement in click-through and conversion rates compared to traditional digital marketing[4].

This is a great example of the unlimited possibilities to innovate with data once the foundational data layer is moved to the Cloud.

BPC Banking Technologies, a 25yr old Swiss-based global financial services IT company focused on mission-critical payments, launched an innovative B2B Fintech company Radar Payments on the Oracle Cloud. A young white-label fintech solution that combines the expertise of the mother company with the latest in digital paytech to serve the growing needs of e-commerce, Radar Payments is focused on time-to-market and security for its business clients. Its motto is to help the financial services sector get rid of reconciliations and grab business opportunities in the booming embedded finance space.

These three diverse use cases are indicative of the business-critical cloud adoption opportunity for any type or size of financial service business. They are also in alignment with the mindset shift that the cloud is a data security & compliance enabler towards transforming into an innovative data business, with data security on the cloud and business resilience.

I`d like to thank Oracle, the sponsor of this post, for sharing their perspectives with me. All opinions are my own.

[1] According to a study carried out in the US by McKinsey

[2] According to Accenture research

[3] https://www.oracle.com/news/announcement/oracle-and-deutsche-bank-2021-06-24/

[4] “BBVA applies influence of emotions on digital ads with Oracle”

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