Banking on the Cloud: Why Banks Should Embrace Cloud Technology


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Cloud adoption has reached critical mass, with roughly 90 percent of businesses employing its technology in some facet of their organization. The cloud presents opportunities for enhanced efficiencies and flexibility—without any security trade-offs—so it’s no surprise that we’re seeing more organizations shift to the software as a service (SaaS) model. But while we’ve seen the healthcare, legal and insurance industries evolve, banks have been more reluctant to adopt new technologies built outside of their own walls.

Why Banks Lag at Cloud Adoption
The banking industry is not known for being nimble. As one of the oldest, largest and most vital industries in the U.S. economy, banking has, in some ways, fallen victim to inertia—relying on traditional technologies and internal networks to disseminate its services. This is in large part due to the widely-held belief that on-premise solutions are inherently more secure than the cloud because data lives in proprietary servers and systems, rather than a service provider’s environment. However, research shows that cyber attacks affect both environments, with on-premise users experiencing over twice as many web application attacks as service provider customers, on average.

Still, for many banks, the perceived risks of the cloud outweigh its forecasted benefits. In fact, 73 percent identified security concerns as the main reason for avoiding it, while 63 percent listed privacy issues as their top worry. That perception is beginning to change, as the cloud’s business advantages have become too significant to ignore. A recent study found big banks are expected to grow from as little as zero percent public cloud adoption to 30 percent by 2019—a dizzying adoption rate for an industry that still relies on legacy systems from the 1960s.

For those still wary of making the switch, here are three of the biggest benefits of moving to the cloud:

Security
Cloud technologies boost your security in ways that on-premise systems are unable to. Traditionally, to use a new offering, you install an on-premise server in your datacenter. Then you must configure network, firewall and secure access to the server. This stretches resources by increasing training requirements, which ultimately detracts from the goal of the offering. Due to economies of scale, cloud companies can own the server, the networks and the processes making the entire offering more complete and secure.

With strict protocols and security certifications like SOC2 and ISO27001 built into many services, banks can ensure that the cloud is accessed and enabled securely for any solution provider they work with.

Understanding the value of security and the benefits that cloud technology brings to banks, a handful of institutions are leading the shift and others are expected to follow. Capital One Financial Corp., an early adopter of Amazon Web Services (AWS), has steadily built its infrastructure in the cloud over the past two years. The company continues to work closely with AWS on specific security and data protocols, allowing the company to operate more securely in the public cloud than it could have in its own data centers, according to Capital One CIO Rob Alexander.

Efficiency and Scalability
The cloud enables teams to be more agile than ever. The SaaS model gives teams the ability to be flexible and enable new interations on-demand. This access to real-time commentary empowers teams to ship updates more quickly and frequently and to push the envelope so they’re constantly improving products to align with what customers are looking for.

By leveraging the cloud to store complex data, organizations can meet ever-evolving regulatory compliance and governance rules mandating data protection. A recent example would be financial institutions working to comply with the EU’s General Data Protection Regulation. The ability to meet regulations can be sped up by a number of the cloud’s features, including built-in auditability for more clarity around your compliance status, and virtual infrastructure that reduces room for error.

On top of addressing infrastructure models, the cloud allows businesses to be elastic. For instance, being able to address the mass amount of credit card purchases on Cyber Monday and expand for that specific demand, rather than having to buy new servers to address the one day-per-year demand.

Overhead Cost Savings
Switching from on-premise to cloud can mean significant savings on overhead costs.

When you work with a SaaS provider, you no longer need to invest in proprietary infrastructure. Instead, you’re able to access and maintain your data through your partner’s established environment. This cuts down on both the up-front capital costs associated with hardware and the continuous costs that eat up budget to keep hardware and software optimized and refreshed.

Rather than pay a flat fee to keep systems up and running, cloud providers offer a variety of metered, pay-per-use options. These include Salesforce and Microsoft Office 365’s pay-per-seat, AWS’ infrastructure as a service (IAAS) pay-per-hour model, and Oracle’s high integration fees.

By outsourcing services to the data center, you can also realize savings on staffing. On-premise technologies can require a team varying in size from one to dozens, depending on the bank’s size. Because your cloud provider takes on the computing, your internal team no longer has to worry about hardware refreshes or server and software updates, freeing up their time to focus on what matters most: your business. Cost savings can also be reinvested into the business to increase headcount, boost wages and drive product innovation.

Cloud technology has already been embraced by businesses in numerous industries, but banks have been slower to acknowledge its benefits. Now, as cloud’s positive impact on security, efficiency and cost come to the forefront, it’s becoming harder for banks to ignore the advantages. Already, we’re seeing early adopters reap the benefits, from a financial standpoint and innovation perspective, and in the coming years, we can expect to see banking in the cloud transition from a “nice-to-have” to a business-critical approach to moving up in the market.

Looking to Save Money on Compliance? Here’s How


compliance-1-13-17.pngCompliance in the financial services industry is absolutely necessary but absolutely time-consuming as well. For community banks in particular, pragmatic evolution of the way compliance is handled is absolutely critical for survival in a highly competitive and increasingly complex market.

Recent estimates suggest that over 300 million pages of regulatory documents will be published by 2020 and over 600 legislative initiatives need to be cataloged by a medium-sized institution. Just the scale and pace of the changing rules that community banks need to comprehend, let alone the implications, is paralyzing to say the least. Therefore, the necessity for resource-efficient compliance solutions in the coming years is expected to skyrocket—professionals suggest that the global demand for regulatory compliance and governance software is expected to reach $118.7 billion by 2020.

While compliance certainly looks very expensive, non-compliance blows even a bigger hole in the budget of any company. In fact, financial institutions in the U.S. alone have paid over $160 billion in fines for non-compliance.

Regtech, or regulation technology, refers to a set of companies and solutions that address regulatory challenges across industries, including financial services, through innovative technology. There are about 6,000 technology companies flooding the market with innovative solutions in financial services alone, arguably one of the most complex industries anywhere.

These firms provide access to simpler regulations through a SaaS (software as a service) model, supporting clients in developing the necessary reports and eliminating the need for additional expenditures on consultancy firms and expert services.

As opposed to legacy systems, regtech is agile and ever-evolving by nature. The industry brings together next-generation technologies—blockchain, AI (artificial intelligence), cloud computing, API (application programming interface), biometrics, robo-advisors, etc.—to enable financial institutions, most importantly smaller ones, to operate at a new level of efficiency and release resources for innovation.

Enhanced KYC Efficiency
Almost every financial institution has to have a robust know-your-customer (KYC) identification program in place and perform ongoing tracking and monitoring of customer transactions. All of this includes multiple detailed compliance rules.

To overcome this difficulty, regtech solutions automate those processes to an extent, thereby reducing the cost of managing compliance. Moreover, regtech solutions tailored specifically for online verification bring down the time and total cost of on-boarding, thus enhancing the customer experience.

Substantial Compliance Cost Reduction
Costs are a real problem in the compliance space, and the relative cost of compliance substantially increases with the decreasing size of the financial institution. While banks with assets ranging from $1 billion to $10 billion reported total compliance costs averaging 2.9 percent of their noninterest expenses, banks with less than $100 million in assets reported costs averaging 8.7 percent of their noninterest expenses.

Cost reduction in the compliance department has far-reaching implications. A community bank-focused survey, conducted at the end of last year, indicated that regulatory compliance accounted for 11 percent of their personnel expenses, 16 percent of data processing expenses, 20 percent of legal expenses, 38 percent of accounting and auditing expenses and 48 percent of consulting expenses. Being a technology-driven rather than manual response to a problem, regtech significantly drives down all the above-mentioned expenses, almost eliminating some of them.

Agility, Flexibility and Learning
Normally cloud-based, regtech solutions are agile, which leads to great flexibility and speed of reporting, ensuring a high level of control over information. Application of AI in regtech enriches it with the ability to keep organizations up-to-date on the evolving regulatory environment, thus reducing the risk of non-compliance-case expenses.

Machine learning can identify complex, nonlinear patterns in large data sets and create more accurate risk models. Among the other benefits brought by AI into regtech are handling customer protection and complaints, monitoring of behavior and internal culture in organizations, KYC regulations, real-time monitoring of new regulatory requirements and modification, among other benefits. Banks can use regtech for stress testing, as well as to monitor for fraud and cybersecurity problems.

Security and Reduced Deployment Time
Data encryption and real-time monitoring capabilities make regtech solutions secure. Regtech also speeds up the implementation of compliance initiatives, thus enabling businesses to focus instead on business goals. Being cloud-based, regtech enables organizations to manage and backup data remotely, having it secured at the same time.

Being multi-purpose by design, the regtech ecosystem is highly diverse. There are over 100 companies in the space addressing various specific needs, including CrowdBounder, Suade, Ayasdi and Neurensic.

Given all the benefits listed above and many more, regtech has an astonishing return on investment. Experts in the field suggest that investments in regulatory software can lead to an ROI of more than 600 percent with a payback period of fewer than three years.

Using SaaS to Run a Highly Efficient Board


SaaS-10-28-15.pngHistorically, the preparation of board meeting materials took hours. The organization of board documents was a labor intensive crunch involving several people sifting through, hand collating, binding and manually distributing stacked materials. This process took a tremendous amount of time, and resulted in a significant lag in getting materials to boards, thereby limiting the ability to review materials efficiently. Fortunately, technology has evolved to a point where such marathon sessions are no longer a necessity. By leveraging digital solutions, materials can now be distributed electronically with relative ease and fewer man hours. 

The Convenience
A variety of companies are offering digital board materials, usually as SaaS [Software as a Service], which means the software is delivered remotely via the Internet rather than being purchased and housed on a computer or set of computers. An efficient solution provides a level of convenience to sharing materials that is largely absent from many business processes. You will want to avoid services that pigeonhole technology with proprietary platforms and unnecessary red tape—this does not help the board, and can actually create more problems than it claims to solve.

There are instances where organizations will be sidelined to specific operating systems or specs, but effective offerings will provide wiggle room for platforms and accessibility. Some services are even offering a nearly platform agnostic setup, retrofitting the application to fit with any device worth supporting so directors can access materials from their phone or tablet, regardless of time or location. There are some applications that have circumvented the need for direct Internet access, enabling an access in almost every circumstance.

The implementation must actually save board members the time previously lost to binding and delivery. Any decent SaaS solution will add hours to the boards’ reading time, but some offer to save as much as 95 percent of the time materials once took to create. Simplifying the workflow while delivering a superior product will provide board members with more time to fully understand the materials—thereby translating to a better board meeting.

Of course, all of this is useless if the implementation of the technology opens up debilitating security gaps.

The Security
Banks are responsible for millions of dollars, so it’s understandable that many fear “the cloud,” especially since most news regarding the cloud is rife with breaches. It’s an additional concern that some SaaS products cause more security issues than they solve. As a result, partnering with a product that provides cybersecurity measures is a must.

It‘s immediately essential that data be stored on a dedicated server with thorough encryption. Many solutions will haphazardly toss all data into large servers, but the best products will ensure that data is separated from other clients and accounts. While dedicated servers ensure that information cannot be seen by another organization, encryption converts the data to gibberish, so in the event of a breach hackers would be left with nothing but a mess of letters and numbers.

Having the ability to control individual user access can also add an extra layer of security. In the past materials could be lost, forgotten and delivered to incorrect addresses, revealing materials to damaging elements. The option to digitally deliver materials to recipients eliminates that risk entirely.

Support and The Future
Customer support is key to running an efficient system. Selecting partners that respect your time and understand your business needs is an absolute imperative. A successful implementation must come with 24/7 support. Banks are complicated entities, and the value of having a human being answer the phone is immeasurable. It’s an added incentive if that person is assigned to your account, meaning you know that person and have worked with them in the past. As boards and providers work together, there needs to be mutual respect and consistent communication. Solutions can work with the boards that use their technologies to implement new features, satisfying needs as they arise, and creating bonds that serve to help both businesses thrive.

Technology can be a double-edged sword in modern business. Sometimes we find it opening up worlds of information with no cost to the user. But in some cases technology can expose sensitive data to thieves, or crash and eliminate months of work with no warning. As banks continue to become more dependent on technology to save time and money, it’s exponentially more important that boards have access to SaaS solutions that save time and money, while keeping information, and the business, safe.