The use of the cloud represents a major opportunity and challenge for Swiss banks, both technologically and operationally. If uncertainties weigh on the regulations, they must also anticipate possible disruptions by diversifying their suppliers.
Cloud computing offers interesting prospects for the Swiss banking sector, even if the industry is progressing slowly, mainly due to regulatory uncertainties. This is particularly the case with respect to banking secrecy, the exercise of FINMA’s supervisory powers and the obligations relating to the protection of personal data.
But that’s not all, regulators are concerned that banks using the same suppliers could pose a significant risk in the event of a disruption. This is also why many financial organizations are considering a multi-cloud strategy, to avoid service disruption and to be able to switch between providers when needed.
An opportunity for Swiss banks to seize
Information technology consulting company Service group recently published a report indicating that Swiss companies favor cloud contracts “with a significant private cloud element”, which is reflected in particular in the expansion of data centers in the country to serve Swiss companies.
Indeed, intensified competition, ever-changing customer expectations, increased focus on sustainability as well as recent events have put Swiss banks under increasing pressure to take full advantage of the opportunities offered by technology and potential partnerships.
Accenture examines current models of value creation in its study “A perspective on the future of Swiss banking“, and describes highly integrated value chains with moderate use of new technologies and rigid organizational structures. Potential for growth is identified and the expansion of the range of digital products is one of the important factors that are identified.
The results show that the majority of Swiss banks – from regional and cantonal banks to large banks and private banks – plan to evolve their operating models while increasing their digital capacity as well as their technical and organizational agility.
After a decade of lagging, banks are stepping up and accelerating to migrate to the cloud
To cope with several challenges such as increasing data volume, maintaining remote customer relationship with fewer branches and accelerating the commercialization of digital products, banks have accelerated their pace in digital transformation .
In the coming years, it is estimated that banks will benefit up to 30% revenue through digital channels, requiring banks to accelerate the automation and digitization of heavy processes so they can focus on maintaining and growing customer relationships.
Another recent study by Oracle and IBM, titled “The Cognitive Enterprise for Oracle ERP Cloud in the Industry“, also looks at the economic model of the sector. A new era is dawning in the banking sector. As the cloud, artificial intelligence (AI), automation, the Internet of things (IoT), the Blockchain and 5G are becoming ubiquitous, their combined impact will reshape future business.
The cloud yes, but in a multi-cloud context
Globally, bank spending on cloud is set to increase more than 16% per year through 2024, to reach $77 billion, with a 4.5% annual increase in their overall IT budgets, according to market research firm IDC.
According to Accenture at 100 global banksonly 8% of IT capacity is running in the cloud, but the consultancy expects that figure to double within two years.
Today, financial regulators are watching the digital transformation of banks very closely, encouraging them to use several suppliers in order to prevent failures or security breaches from becoming systemic problems and to limit their dependency.
An international consensus in favor of multi-cloud
In the USAthe financial industry regulator (FINRA) said in a report last august that stockbrokers should be able to switch cloud service providers when necessary and “take into account the risks associated with a possible lockdown”. FINRA said brokers should assess “whether hybrid cloud or multi-cloud options are compatible with their business needs” and consider “an exit strategy to mitigate the risks of an adverse foreclosure scenario.”
The regulatory authority of the Bank of Englandwhich oversees 1,500 financial institutions, is considering collect more data with public cloud providers to assess the resilience of their services, reports the Financial Times. Last year the regulator said it expected companies to reduce “risks of supplier concentration or foreclosure [et] multiple agreements with the same service provider or closely related providers”.
The guidelines of theEuropean Banking Authority to outsourcing caution against dealing with “a dominant service provider that is not easily replaced”. Banks in the EU must be particularly vigilant when it comes to cloud computing in order to avoid any “single point of failure”, according to the banking authority.
“Looking to multiple cloud providers is not just an emerging regulatory imperative, it’s also good business sense”
Xavier Chabanne, Head of Customer Experience Cloud at Oracle Switzerland
Deutsche Bank is moving its core trading, risk management, and capital planning software to databases running on Oracle Exadata Cloud@Customer, while keeping other computing capabilities on Google Cloud. Spanish company BBVA uses Oracle Cloud for machine learning in its marketing department, while performing other tasks on Google Cloud.
The use of multi-cloud must be considered as part of an overhaul of the traditional ways of working for banks
Deloitte had identified cloud governance and security as one of the “hot topics” identified by its IT audit for 2021, saying financial firms, in particular, need to assess and manage “overreliance on any one of the top three cloud service providers to support essential services”.
Banks’ initial reluctance to use the cloud is diminishing as their leaders become convinced of its ability to save them money and enable them to perform tasks that businesses cannot otherwise undertake. Regulators aren’t stopping them, but more are pushing banks to spread their risk across multiple cloud providers.
Understanding that the cloud holds the key to unlocking the value creation banks need to survive is just the first step when deciding to embark on their transformation journey. Banks are turning to technology to improve margins, reduce costs and be more agile, innovative and flexible. But technology is only effective if it is embraced by new ways of working. Ultimately, it’s about the industry being ready to change from within and let the magic happen.