A recent Financial Times article highlighted the frustration customers feel when their bank has a technology failure. Besides slowing down certain operations, it can actually lead to late payments and overdue bills when they can’t access their funds. Additionally, many banks are competing with innovative FinTech startups, who are digitizing the industry and taking customers away from traditional banking in favor of faster, easier technologies.
I recently returned from Finovate in Silicon Valley, where 57 new FinTech companies presented. The audience included bank executives, many of whom were impressed, but expressed concerns about integrating the new technologies to their infrastructure. They also worried about the implementation cost and wondered if their infrastructure could support some of the new systems. Many bank CEOs view working with IT as an essential part of their strategy going forward.
One letter responding to the Financial Times article called out non-technical bank executives for their lack of time focusing on IT as an essential function. However, bank executives are becoming increasingly aware of and examining their IT infrastructure from a innovation, budgetary, and regulatory standpoint.
The fact that many banks have grown through acquisition of smaller banks serves as a real problem. Through acquisition, the larger banks inherit outdated IT infrastructure that have been maintained for a variety of reasons. IT spending currently increases by about 5% each year, and 75% of the budget is spent maintaining systems, leaving only 25% for innovation and upgrades, according to a study by Celent. Bank leaders are also rarely technologists, meaning IT is not a core competency and is often viewed as a cost center, as opposed to a differentiator.
To better compete many of the largest banks are adopting more flexible cloud-based infrastructure environments. This allows for greater scale up and down and a smoother integration with newer, cloud native technologies. For small/mid size banks and credit unions, the same benefits can be reaped by partnering with the right cloud and managed services provider. The cloud can be a huge asset with infrastructure, backup and even disaster recovery as a service, helping to improve computing, storage and telecommunications systems.
While shifting to a cloud approach certainly can help gain more space to innovate, it can also free up budget and time to work on planned projects. Additionally, the cloud can assist a financial institution in not having to suffer the 5% annual increase in infrastructure budget. Some may find that moving to the cloud saves them money and adding in the time savings makes even more budgetary sense.
Lastly, as the cloud becomes safer, a cloud-based approach can help ease security concerns and make regulatory questions easier to answer. Best practices and the measures required to meet regulatory rules can be easily integrated in the cloud, where they are easy to demonstrate and prove. In a disaster scenario, proper disaster recovery can allow a financial institution a much quicker return to full function.
Cloud-based infrastructure creates greater flexibility to innovate, sustainable time and financial budgets, and easy regulatory oversight. By adopting either a cloud-first or hybrid approach many small/mid size financial institutions can reap a number of benefits. If you want to learn more please come visit our environment at the Switch Pyramid in Grand Rapids.
Thomas Coke is the VP of Strategy at Iserv, an IT company based in Grand Rapids, MI and Boston that focused on cloud ‘as-a-service’ offerings. He also has a deep background in FinTech and working with financial institutions on modern systems. He can be reached at email@example.com