Exploring corporate banking’s growing business case for cloud migration
Patricia Hines is head of corporate banking at Celent. Patricia heads Celent’s Corporate Banking practice and is based in Charlotte, NC. Her areas of research include corporate banking and global transaction services with a particular emphasis on treasury and cash management, corporate banking delivery channels, commercial and small business lending, and emerging technologies such as APIs, blockchain, and artificial intelligence. Patty has been published in a broad range of industry media and presented at numerous conferences.

The impact of public cloud on retail banking is already clear. As a mainstream technology, cloud enables top initiatives such as digital, mobile, and customer analytics. In the corporate banking segment, the pace of cloud adoption and migration has been slower. Top among the forces impeding legacy transformation and the move to the cloud: security and compliance concerns.

Today, corporate banking’s approach to innovative technologies and cloud computing is changing. While on-premises may remain the preferred location for many applications in the near term, the business case for evaluating and making the move to cloud is increasingly clear. Corporate banks are looking to the cloud for agility, innovation, ways to free up budget and move away from capital expenditures, and to keep pace with clients’ expectations for digital engagement.

Findings from Celent’s inaugural Corporate Banking Public Cloud Survey highlight banks’ ambitions and strategies for public cloud adoption for their critical corporate and transaction banking solutions. The results reveal the changing approach that corporate banks are taking toward cloud—and the trends that are likely to continue.

Driving corporate banks’ cloud migrations

Though earlier discussions about the move to the cloud may have been anchored in the possibility of cost savings, many drivers are behind the current interest. Business benefits are clear for both the IT and business divisions of a financial institution (FI). The top drivers are increased agility, which aids in the acceleration of development and innovation, and the ability to spend a greater percentage of the IT budget on innovation.

Additional drivers (each cited by 50% of respondents) include the flexibility provided by moving away from CapEx to OpEx; improved customer experience; improved compliance, compared to in-house managed systems; and an improved ability to partner with the fintech ecosystem. Over the past year, COVID-19 provided an additional impetus, emphasizing the need to enhance client engagement and the overall customer experience; half of survey respondents indicate plans to move more workloads into public cloud infrastructure in response to the coronavirus pandemic.

Moving beyond barriers

Two well-known concerns—security and compliance—were cited by many respondents (63% each) as practical barriers to implementing cloud initiatives. Yet perceptions around security are encouraging: 90% disagreed with the statement that “cloud technologies are not secure enough for bank workloads” and half believe that cloud can contribute to improved cybersecurity.

Other concerns, perhaps discussed less commonly, are also seen as practical barriers to implementing effective public cloud migration initiatives. These include the lack of internal expertise, lack of internal alignment on the

best path forward (caused by risk issues, operational impacts, and changing roles, including within the IT department), and technology infrastructure that’s not yet cloud-ready.

To evaluate how to move forward appropriately, collaborative decisions provide significant value. Clearly, caution is justified when making decisions about technology architecture—particularly when client-facing apps and sensitive financial details are involved. IT groups frequently initiate discussions about enterprise architecture strategy, but plans are often made collaboratively, with input from enterprise architects, line of business (LoB) technology teams, and LoB product managers. At some FIs, however, decisions are left to the CTO/CIO or the IT group.

State of the strategy

Corporate banks tend to be conservative about their approach to public cloud migration. Only 20% (compared to 40% of retail banks) will embark on a broad migration to the cloud. Instead, in corporate banking, non-client facing systems will migrate to the cloud selectively, as reported by 70%; core transaction platforms and customer data will remain on-premise (running in the FI’s data center). Though these systems may remain on-prem in the near term, most banks are (or will be) operating in hybrid multi-cloud deployment environments, using a mix of on-premise, private cloud (infrastructure provisioned for exclusive use by a single organization, comprising multiple consumers or business units) and public cloud (on-demand delivery of compute power, database storage, applications, and other IT resources via the internet with pay-as-you-go pricing) services, with orchestration across platforms.

As all banks anticipate that their architecture will evolve, three out of five respondents feel that their enterprise-wide cloud strategy is articulated clearly. A minority, one in five, report that each line of business is pursuing a cloud strategy independently. Most corporate banks (80%) are working with vendor partners to support their cloud plans. Nearly 90% are using a third-party firm to assist with strategy implementation or ongoing cloud management. Banks often select an IT services firm that already knows the FI’s on-prem technology architecture and software solutions; this specialist knowledge can prove advantageous when helping a bank migrate its solutions to the cloud.

Among the top technologies that data-driven banks are embracing (currently running in or planning to migrate to a public cloud within the coming two years) are:

  • artificial intelligence/machine learning (AI/ML), reported by 50%,
  • data lake/data warehouse technologies, reported by 50%, and
  • robotic process automation (RPA), reported by 40%.

At present, API management platforms and blockchain/distributed ledger technology (DLT) remain on corporate banks’ current infrastructures.

When corporate banks focus on core or critical services (e.g., payments and cash management), a cloud-native/cloud-ready strategy for new software procurement is prevalent, as reported by 60%. Others are agnostic regarding the software deployment method.

Migration considerations

Corporate banks that are evaluating their cloud migration plans should keep three main considerations in mind:

1. The application: Evaluate which applications are most appropriate for your selected cloud environment and architecture.

2. The use case: Determine which use cases are most pressing and best suited to the FI’s cloud migration.

3. The current state: Create cloud strategies for elements of the IT stack that are likely to be successful. These can provide experience to support the more complicated migration initiatives, such as applications that may prove more challenging to get to a cloud-enabled state.

The trend toward cloud is clear for corporate banks. The move will happen stepwise. And when it does, banks will be able to tap into the innovation and agility provided by hybrid, multi-cloud environments.

Photo by Etienne Martin on Unsplash

Interested in hearing industry leaders discuss subjects like this and sharing their experiences and use-cases? Attend the Cyber Security & Cloud Expo World Series with upcoming events in Silicon Valley, London and Amsterdam to learn more.

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