Cloud-based digital banking: pushing a new business frontier
N-iX
2022-02-01T20:14:15+00:00

Cloud based digital banking allows banks to improve customer insights, increase profits, test their products, deliver relevant and diverse offerings, and expand their service portfolio. It also helps to conveniently organize and store data, which makes it easier to analyze it and generate valuable i...

Cloud-based digital banking: pushing a new business frontier

Cloud based digital banking allows banks to improve customer insights, increase profits, test their products, deliver relevant and diverse offerings, and expand their service portfolio. It also helps to conveniently organize and store data, which makes it easier to analyze it and generate valuable insights.

The movement towards the cloud has already started with such large financial institutions as Deutsche Bank, Wells Fargo, Goldman Sachs, and HSBC announcing deals with AWS, Google Cloud, and Azure back in 2020. Up to 72% of IT executives in the banking sector believe that incorporating cloud solutions into their products will help in achieving their business priorities. 

Cloud is not just a cheaper, more flexible, and faster alternative to on-premise data storage, it is a critical tool for optimizing the business performance and expanding to the new business frontiers. 

Why choose cloud for digital banks?

Modern digital only banks either start on the cloud from the get-go or migrate to the cloud in case they started off on premise back when cloud computing was not popular. If you are a digital-only bank currently entering the market, the best idea is to start on the cloud. However, if you’ve been on the market for some time and currently have on-premise data storage, cloud migration is your best solution.

Cloud opens the doors for evolution in digital banking. It makes it much easier to change, scale, and update the services you offer to your clients. It offers better security and creates new opportunities for business growth.

Cost optimization

With cloud based digital banking, you do not need to invest in new hardware. You cut heavy up-front expenditure and replace it with smaller operational costs and the cost of migration service. Thanks to the flexibility of cloud based banking, you can pick the required services as you go and pay only for the things you need at the moment. You can turn different types of services on and off based on your current needs, so you won’t have to pay for the things you do not need.

Business continuity

If you opt for the public cloud, the service provider takes responsibility for managing the cloud. This allows for a higher level of fault tolerance, fraud prevention, and faster recovery. Even in the case of an emergency, the downtime would be significantly shorter, compared to traditional infrastructures.

Focus on essentials

Cloud computing allows you to transfer non-essential services to the cloud, which includes software maintenance and patching. With that, you can focus on your business and delivering value to your clients rather than on the proper functioning of your IT infrastructure.

Agility

One of the main benefits of cloud banking is the reduced time-to-market for the new products. This allows you to respond to the needs of your clients much faster. Thanks to the on-demand nature of cloud-native services, it would also require less infrastructure investment on your part to launch a new product. 

The challenges of cloud migration

Despite cloud offering a number of advantages to financial institutions, there are things you should keep in mind. These, however, are the same challenges that have been persisting for on-premise digital storages for years. When a bank moves to the cloud, there are two main challenges to address:

Security

Security is always a major concern for digital only banks as they are the most desirable target for cybercriminals. The level of security threat is an always moving bar, and leveraging the strengths of cloud services is a never-ending arms race against cyber attacks. 

Security is paramount for banking institutions. You cannot afford the risk of having your data or assets stolen by cybercriminals.

Compliance

Most banking regulations require the financial data of your customers to stay within their home country. Other regulations prohibit you from mixing the data of customers from different locations. It is critical for digital only banks as well as international cloud based banking institutions to keep the data on their international clients structured and organized. 

A properly organized cloud storage allows you to keep all the client data conveniently stored in one place and structured by location and other metrics. 

Cloud gives a much higher level of assurance at a much lower cost in terms of time, effort, and money invested. Cloud servers are superior to on-premise data centers across such dimensions as compliance, auditing and logging, encryption, and patching. Different service delivery models and types of clouds give you a different level of control over the information. 

Cloud storage control levels

Cloud migration: how to do it right?

Creating a cloud architecture from scratch or migrating to the cloud is a multi-layered process. You need to understand which services will be available to your clients via the cloud and what your cloud bank infrastructure will look like. 

In most cases, the data transition occurs in several steps:

Architectural analysis

At N-iX, we begin by conducting an architectural analysis to come up with the relevant steps that match your intended services. Most traditional banks operate at a certain time of the day, which makes it easier to migrate the data without disrupting the business continuity. 

In such cases, we will find an appropriate release window that will not affect or disrupt your operations. The clients of the traditional banks do not even notice the transition to the cloud and the operations of the bank continues as usual during the working hours.

In the case of cloud based digital banking, however, cloud migration gets more complicated. Thereby, the migration process needs to be broken down into many stages that would occur one after another gradually transferring the client data from on-premise storages to cloud.

The architectural analysis includes several sub-stages that are essential for making your transition to a cloud environment as seamless as possible:

  • Evaluation of performance requirements
  • Selecting the required microservices
  • Evaluation of the security requirements
  • Cloud platform selection
  • Calculation of costs
  • Estimation of the migration timeline

At the same time, it is essential to take the major challenges of cloud migration into account:

  • Interoperability
  • Data and operation portability
  • Business continuity
  • Data security 

Migrate the existing data

The first step is to create a copy of your existing data on a cloud bank data storage. You will have to choose the right cloud provider and the type of cloud you are going to use. This whole process involves careful copying of the data in a proper format and schema. Simply put, it is a snapshot of your on-premise data.

Set up synchronized replication

After transferring the snapshot of your on-premise data to the cloud storage, the next step is to set up an ongoing replication process. This is the process of incrementally capturing the changes in the data and applying those changes to data storage. This might require a number of specific solutions to address the unique needs of your business, and these solutions would be implemented along the process of replication and synchronization.

Migrate business intelligence

The analytical infrastructure needs to be migrated too as it is a major component of your entire data infrastructure. You will have to analyze the data on the cloud, and so you will need the tools to do that. That is why the migration of the relevant BI tools is paramount.

Setting up your cloud from the get-go

If you are a challenger bank or just planning to start your own business in fintech, and you don’t have on-premise data storages yet, the best idea is to start on cloud. Now, you don’t have to do all the migration steps discussed above, but you still need a robust cloud architecture to make everything work the way you need. 

Mapping out your cloud architecture allows you to see exactly how much time and resources it would take to set up your storage. Different cloud platforms have different pricing policies for their microservices. So, you will need to know exactly what kinds of services you are going to need to optimize your budgeting. 

This would depend on what kinds of services you are going to offer to your clients, the amount of data you are going to store and process, and the number of cloud storages you are going to use. You should also remember that there are different types of cloud deals that offer different degrees of security, different services, and different contingency plans in case anything goes sideways. 

Choose the right type of cloud

Different types of clouds give you a different degree of control and security. On top of that, they have different compliance and regulatory specifications. Whether you are a digital bank or a long-established financial institution, you must select the right deployment and operating model that would address your security and compliance concerns. 

  • Private cloud puts you in charge of the entirety of the cloud infrastructure. In that case, you can manage the cloud yourself or delegate that task to a third-party dedicated team of experts. This is the most secure model for cloud deployment.
  • Public cloud is owned and offered to you and other businesses by a large industry leader. 
  • Hybrid cloud’s infrastructure is composed of both private and public clouds that are linked together to deliver value to your business.

Scalability and control in cloud types

  • Multi-Cloud is used to maximize the reliability of the cloud bank infrastructure, and digital only banks choose to use several cloud storages. As an instance, a bank can opt for both Azure and AWS cloud platforms and use them together and interchangeably. Although issues are infrequent on the platform’s side, they still might occur and result in issues with data access for your clients.

To prevent such issues, you can choose to use two or more cloud platforms. Depending on what types of services you need, you can secure your business continuity by diversifying your cloud environment and using multiple platforms. It is better to be safe than sorry, so if one cloud platform experiences any issues, you can quickly switch to another to avoid any breakdowns.

It is easier to create a multi-cloud infrastructure from the start rather than copy and transfer the data from one cloud provider to another. But it can also be done in the later stages. This would cost you more, but it can still be done by a team of professionals with relevant skills.

Final Thoughts

Banking institutions are evolving as do the needs of their clients. Most people don’t want to go to your office, wait in line, talk to the managers, and all that just to do basic transactions like paying their bills, getting a loan, or sending money to somebody else. All of that can be done straight from their smartphones, and that’s what cloud based digital banking is for. 

Cloud infrastructure offers numerous benefits like cost-saving, better security, agility, focus, and business continuity. And on top of that, it opens the doors for further digital transformation. Cloud based digital banking is the future of financial institutions, the future where the clients have more control over their assets and where the banks can adjust to the changing conditions on the market.

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