In a new report, Quinlan & Associates suggests successful adoption and effective utilisation of cloud technology can help banks achieve a 1-2 percent revenue boost and a 2 percent reduction in overall costs.
A new report by financial services strategy consultancy Quinlan & Associates suggests that increased investment in cloud technology could reduce IT-related costs at banks by about 20 percent over the next five years.
The report, which explores the uses and applications of cloud technology in the banking industry, notes that outsourcing of IT infrastructure tends to be much cheaper than the hardware and labour resources required for onsite development, maintenance, and operation. In addition to the cost advantages, third party cloud services also introduce scalability, reliability, and efficiency benefits, while at the same time allowing banks to focus on their core business.
“As the [financial services] industry continues to grapple with ongoing cost headwinds, especially in the wake of mounting regulatory hurdles, many banks are increasingly looking to cloud technology as a more efficient and cost-effective alternative to support their digital transformation programmes,” the report said, estimating that USD 8.5 billion was spent by the global banking industry on cloud services in 2017.
But according to Quinlan & Associates, this number may reach USD 32 billion by 2023, potentially yielding about 20 percent in IT-related cost savings. Given that global banks attribute an average of 7-9 percent of their costs to technology, this would translate to a 1.6 percent reduction in overall operating costs, the report says.
Recognising this, banks have made significant progress in adopting cloud solutions, notably in areas such as data storage, application development, client servicing, and digitalisation. But, according to Quinlan & Associates, cloud technology has been heavily underutilised in driving internal collaboration, both internally and with external parties.
According to the report, connectivity and collaboration are widely viewed as critical for sustained growth – for enhancing productivity, flexibility and innovation – and are often enshrined as key corporate values. But banks tend to operate their businesses in an “extremely siloed manner”, exacerbated by a culture of competition rather than incentivised to work together, it added.
Cloud-based applications can function to centralise communication and file sharing, synchronise file-editing and improve project management, and can enable employees to collaborate seamlessly, the report says. “Beyond this, we see considerable potential for cloud-based collaboration tools to streamline work efforts with external parties, such as lawyers and consultants, on major transformation projects.”
According to the report, successful adoption and effective utilisation of cloud-based collaboration applications can achieve a 1-2 percent boost in revenues, from increased cross- and up-selling and better client servicing. A further 0.5 percent reduction in costs can also be achieved from streamlining processes and eliminating duplicative procedures, which can result in faster project roll-out timelines.
“Taken together, we believe cloud technology and related collaboration applications have the potential to reduce the cost-to-income ratios of leading global banks from ~85% to ~82% over the next five years.”
However, the report says, the banking industry faces several obstacles to cloud technology adoption; namely, concerns around data security. Regulatory demands for data privacy and security – including data onshoring requirements – have created a general industry reluctance around the use of public clouds. Quinlan & Associates finds this problem particularly acute in Asia, as banks must address non-standardised compliance requirements from multiple local regulators.
“Banks and cloud providers will need to work closely together in coming years to lobby regulators into becoming more supportive of the use of public cloud technology, including pushing for greater international regulatory harmonisation.,” the report said. “However, this education process will inevitably take some time.”
Also noted is the need for cultural change – including in incentive systems, governance structures, and communication strategies – to support the collaborative behaviour enabled by cloud technology; that is, if banks are intent on achieving its full benefits.
In spite of the significant amount of time and upfront investment needed to adopt cloud technology and realise its benefits, Quinlan & Associates believes banking on the cloud is vital for firms looking to enhance their digital transformation programmes and boost collaborative efforts.
The full report is available for download here.