Forecasting the Weather: ASEAN Financial Services Industry Taking Balanced Approach to Cloud

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Many financial institutions in ASEAN have moved  their non-critical applications to the cloud, while mission-critical applications continue to be run on-premise; customer data is similarly stored locally. 
FEBRUARY 10, 2020 - 12:56 PM

The relationship between banks and cloud technology has seen a considerable shift in the last few years. While financial institutions were initially reluctant to embrace the cloud, they are now seeing the benefits of moving certain aspects of their infrastructure to the cloud.

How has this sea change come about? While there has been some debate about the role of regulatory attitudes, I believe it mainly comes down to the fact that banks now realise that the cloud can be a key enabler for the digital transformation of their business. If done well, it allows them to focus on activities that enhance their customer experience and help them compete with new entrants. 

ACI Worldwide recently released the Culture of Innovation Index, in which 92 percent of respondents from corporate banks globally said that their organisations are either already making significant use of the cloud, or planning to make further investments this year. However, the proportion stood at 80 percent for respondents from the ASEAN region.

The reason for this is that banks here are taking a more balanced approach. We’re seeing many financial institutions move  their non-critical applications to the cloud, while mission-critical applications continue to be run on-premise; customer data is similarly stored locally. 

While this does not preclude the possibility of a more widespread adoption of public cloud in the future by the region’s banks, it does indicate a desire by these organisations to better understand the risks and benefits of the technology before completely committing their infrastructure to the cloud. Underscoring this is the fact that the Association of Banks in Singapore recently released updated guidelines for financial institutions regarding the use of cloud services, including best practices and considerations. To better understand why banks are exhibiting strong interest in this technological trend, here are some of the key business benefits of cloud adoption.

Cloud is empowering lightning-fast solution deployments that improve customer experiences

It’s old news at this point that mobile commerce has enjoyed incredible popularity in the ASEAN region, but one less-discussed consequence is that consumers and merchants now expect a better – and more importantly, real-time – customer experience. At the same time, neobanks and fintechs (most of which are cloud native and focus heavily on customer innovation) have burst onto the scene, adding further pressure on incumbents to up their game when it comes to delivering added value. In this environment making small incremental gains, through for example the introduction of e-statements or self-service portals, no longer cuts it. Instead, banks have to transform their legacy IT and technology systems to remain relevant.

Entering the cloud is the first step on this journey towards digital transformation. It enables banks to focus time previously spent running and maintaining costly IT infrastructure on activities of greater importance to their customers. Additionally, it allows them to partner with fintechs with greater ease. 

If fintechs want to connect to banks that have not embraced cloud, both parties have to go through a lengthy and complex process – not just once but multiple times if they are partnering with more than one player. Cloud enables banks to offer Application Programme Interfaces (APIs) that are much easier for fintechs to connect into. This is important because the banks and fintechs that will thrive are those who partner and capitalise on each other’s strengths.

Organisations are no longer grounded by local data centres

Historically, many banks ran their own data centres. But as this is extremely resource and cost- intensive, and banks are having to rethink their approach by taking a hybrid approach.

Imagine a scenario where an ASEAN-based bank is looking to establish a presence on another continent. In the past, the bank may have had to purchase additional data centres to ensure resilience and meet peak demand. However, this meant that for most of the year, the business was spending hundreds of millions of pounds to run and maintain data centres that are only 10 percent full.

This is an example of banks working in a capital expense (CAPEX) model, highly inefficient and cost intensive as their infrastructure needs to meet peak demand, even if volumes are lower for the rest of the year. Adopting the cloud enables banks to move to an operating expense (OPEX) model, where they can enjoy elastic scalability and only pay for what they need. This gives them the agility to scale their data storage up or down depending on the needs of the business.

It also enables financial institutions to focus resources on what really matters: driving innovation and delivering an excellent customer experience through quicker product iteration.

Many banks cited security concerns in the past as the reason for them not being too quick to embrace public cloud but are increasingly coming around to the fact that the big cloud providers are spending more on security than they ever could on their own.

In the Culture of Innovation Index, 82 percent of respondents from corporate banks, 74 percent from retail banks, and 79 percent from intermediaries globally said that they are planning to move mission-critical workloads onto public cloud infrastructure by this year, which is a strong vote of confidence. As such, we may yet see ASEAN financial institutions move from a hybrid model to one that fully embraces the public cloud in the future.

Adopting the cloud enables banks to run a more cost-effective operating model, while providing them with the agility to adapt to the ever-changing financial environment and enter new markets. Ultimately, this means they can focus their time and effort on delivering the customer experience required to remain relevant in an increasingly competitive environment.

The writer is head of ASEAN, ACI Worldwide