cloud computing in banks

7/29/2019 cloud computing in banks

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A new era in bankingCloud computing changes the game


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Cloud changes all therules in banking.


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Table of contents

How cloud computing will shake up the banking industry 3

Trend 1

Cloud-based services will leverage social and mobile media to transform thebanking experience and relationships for customers 7

Trend 2Private clouds come to dominate core banking 10

Trend 3Public cloud will dominate non-core and non-differentiated banking activities 13

The future of cloud computing in bankingCompetition, collaboration and convergence 15

Realizing the cloud-enabled futurePrioritizing strategy and execution 18


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A new business model

Sounds far-fetched? We dont thinkso. Accentures Banking 2015-20 studyconfirms the pre-crisis, high-leveragebanking approach is no longer a proper fitfor purpose in the post-crisis world. Forexample, to successfully manage currentmarket challenges (e.g., with liquidity,volatility and regulation), retail banks canno longer rely extensively on expensivebranch-focused distribution to achievesustainable growth. Rather, they mustlook to smart size their distributionnetwork. In this new market context,

banks will need to successfully overcomespecific distribution and marketingchallenges in the following three ways:

1. Restore customer trust and

engagement

This will be particularly challenging dueto a perceived lack of transparency andfairness and increasing demand for socialresponsibility; and

2. Hold their ground with their

payments business

Increasingly, the market is witness toprogressive disintermediation wherebanking without banks and a rapidrise of ecosystems (e.g., Google Wallet,PayPal) are creating a new marketparadigm; and

3. Avoid commodization

Going forward, banks need todifferentiate the customer experience,products and services.

A powerful nexus of changing customerbehavior through the use of web, mobileand social connectivity and emerging newtechnology (e.g., digital, analytics andcloud) are motivating smart banks to

re-examine and re-engineer their businessmodels. Accenture sees at least three

unique business models emerging amongsmart banks (See Figure 1):

1. The analytical multichannel bank

2. The socially engaging bank

3. The digital ecosystem bank

The analytical multichannel bankengages customers frequently throughvarious channels while offering personalpreferences and is underscored by:

advanced multichannel integration

focused on digital channels andintegrated architecture;

pervasive analytics based on effective

customer data collection and microsegmentation defining new productsand pricing;

real-time interaction management

(i.e., predictive modeling and real timeevents management); and

a product offering based on micro

segments and optimized by channels

The socially engaging bank interacts withcustomers who spend their time leveraginginformation provided via social media. It isdependant on:

customer feedback and preferences

monitoring through social media tomitigate risks and react to issues;

social digital marketing to engage the

customer with the proper content; and

a product offering defined by social

CRM and enriched customer datathrough social media tools.

To achieve and sustain high

performance in the future,

traditional commercial banks

across the world will need

to master two fundamental

changes:

1. The transformation of their

product offerings, channels

and customer service to reflect

the demands of the changing

consumerconnected,

impatient, empowered, anddemanding of services that meet

their individual and social needs.

2. The reshaping and reinvention

of their core banking operations

to enable a more competitive,

customer-centric, efficient and

sustainable business model.

A failure to achieve either of

these imperatives will exposebanks to disintermediation by

nimble, low-cost online and

mobile providers of personal

financial management and

payments servicesresulting in

loss of relevance to customers

and, therefore, their prominence

in the financial services

value chain.

How cloud computing will shake up thebanking industry


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The smart banking revolution Smart banking

Possible paths

Effectivemultichannelintegration

Pervasiveanalytics

Real timeeventmanagement

Product offeringoptimization &scientific pricing

Social CRM(data enrichmentand optimizedoffering)

Social medialistening &monitoring

Social digitalmarketing(clustering clientengagment)

The Digital

Ecosystem

Bank

Trustmanagement

M-paymentsMobilemarketing andanalytics

Mobilecommerceecosystem

Partnership,alliancemanagement

Tomorrow

The Analytical

Multichannel

Bank

The Socially

Engaging

Bank

Today

Branch networkoptimization

Basicmultichannelorchestration

Deep customerunderstanding

Web & mobilechannel marketing& effectiveness

Empoweredbranch front line& sales tools

Smart interactionwith customers

Needs-basedoffering

Performancemanagement

The Do Basics Right Bank

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Figure 1: The smart banking revolution and emerging business models

The digital ecosystem bank offersextended services by leveraging adynamic network of partners. It is

distinguished by:

an enriched proposition through

mobile commerce, focused on financialand non-financial offerings, geo-localization and hot deals;

the active use of mobile payments,

based on near-field communication(NFC) or mobile wallet; and

alliances and partnerships with non-

banking operators.

underpinned by a newtechnology environment

Banks must achieve these attributeswhile adapting to the new technologylandscape outlined in the AccentureTechnology Vision 2012. For banks, thisnew world will be characterized by threemain technology trends:

1. Distributed IT will be the new

normal

Data will be dispersed across morelocationsin-house, outsourcing vendors,

cloud computing providers, third-partiesand under the control of far more owners,including branch versus corporate,business versus IT, one business unitversus another. Analytics will intersect thedistributed data and become distributedas well.

2. Distribution requires

decoupling

The decoupling and disaggregationof banks business process flows,applications and infrastructure will enableimproved business agility, including fasterand lower-cost geographic expansion,and easier adoption of new technologiessuch as mobility and social media. Thisdecoupling enables banks to considersourcing discrete business processes as aservice from third-parties.

3. Exploding volume of metadata

yielding greater insight

The rapid digitization of bankingchannels and services enables trackingand analysis of everything fromkeystrokes to consumer behavior tosocial identities. This brings opportunitiesfor more sophisticated customerintelligence, enabling banks to migrateto social enterprises and reinvent theirrelationships with customers.

Figure 1: Accenture Banking 2015-20, by Piercarlo Gera, Managing Director Strategy Consulting FinancialServices April 2012


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Public cloud and cloud-based shared services willdominate non-core andnon-differentiated bankingactivities, from workforcecollaboration to documentmanagement and even

payments.

Trend 1 Trend 2 Trend 3

Cloud-based financialservices offerings willleverage social and mobilemedia to transform thebanking experience andrelationship for customers.

The shape of banking cloudsto comeAs banks adapt to these changes intheir competitive and technologyenvironments, cloud computing willplay a major role. Clouds combinationof low cost and high scalability,effectively unlimited processing power

and storage, unprecedented agility andspeed to market, and variable pay-per-use cost structures all supportthe qualities that banks will need tocompete and win in the future.

Already, some newer banking entrantsunburdened by complex and costly legacysystemsare using cloud to supportcore banking applications. However, wedont expect to see a wholesale mass-migration to public cloud services acrossthe entire banking industry. Instead,banks adoption of cloud will be highlyselective and targeted, focusing on

matching the characteristics of eachspecific process with the differentvariants of cloud computing.

In our view, there will be three keytrends in banks use of cloud computing,reflecting the different flavors outlinedin the accompanying information panel.

Single-tenant private cloudsthrough virtualizationwill play a pivotal rolein core banking, enablingbanks to keep control overthe location of sensitivecustomer data. Over time,

hybrid clouds and publicsovereign clouds will enterthis domain.


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Cloud computing is a model, not aspecific technology. Cloud computing,

by Accentures definition, allowscompanies to access IT-based servicesvia the internet. A cloud-based modelprovides rapid acquisition, low tono capital investment, relatively lowoperating costs and variable pricingtied directly to use. Cloud computingservices operate at several levels:infrastructure as a service (IaaS),software as a service (SaaS), platformas a service (PaaS) and business

process as a service (BPaaS). Thereare several different flavors ofcloud, each bringing its own specificimplications for banks. The mainvariants are:

Public clouds

Public clouds extend the datacenters capabilities by enablingthe provisioning of IT services fromthird-party providers over a network.

The data and processing may belocated anywhere in the world oninfrastructure that is shared with thecloud providers other customers,or tenants.

Private clouds

Private clouds are built by applyingvirtualization within a banks owndata centers. Because private cloudsare not exposed to external tenants,banks tend to regard them as a moresecure environment for customer data.

Hybrid clouds

Hybrid clouds blend public and privateclouds depending on the sensitivityof the data and applications in each

process, and the degree of businesscriticality and differentiation. Mostbanks will follow a hybrid cloudstrategy which can also be a cloudowned by and located within the bank,but operated by a third-party.

Public sovereign cloud

Public sovereign cloud is anemerging variant, under which a publiccloud provider commits to keepingthe cloud data and processing withina specific jurisdiction. This facilitatescompliance with data protectionregulations forbidding personal datafrom passing beyond national borders.

The various flavors of cloudcomputing


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Cloud computings disruptive

impact on banking will be the

way in which it transforms how

consumers research, learn about

and buy financial services and

products and manage their

personal finances in the era of

social media. Already, a new

generation of cloud-based onlinepersonal financial management

applicationsmint.com, Geezeo

and BankSimple to name a few

are gaining traction among

customers.

Trend 1

Cloud-based offerings will leverage social and mobile media totransform the banking experience and relationships for customers

By offering disaggregated bankingservices, and moving information, adviceand money in a faster, more responsiveand more personalized way, these newentrants aim to become the front officefor customers banking needs, leveragingthe social and mobile experiences thatconsumers find so compelling.

At the same time, cloud-basedapplications such as peer-to-peer lending

and crowd sourcing of loans (often micro-loans) are gaining momentum, especiallyin emerging markets. And banks role inpaymentsincluding in the emerging areaof m-commerce and mobile walletsisbeing challenged by online heavyweightsPayPal, Google and Facebook.

The cloud computingthreatCloud computing is responding to supplyand demand. On the supply side, it isenabling new entrants into the marketwith lower cost platforms. On thedemand side, it is enabling customersto bypass the banks and go directlyto cloud-based services. For banks,the complication is that talking atcustomers is now a thing of the past.Instead of being told what is happening,customers want a personalized dialogue.

If banks fail to reinvent their services toreflect these changes, they risk seeing

their relationships with customers takenover by the new providers who understandand harness the new paradigm moreeffectively. This would ultimately relegatebanks to a back-office utility running

bank accounts behind these third-partycloud-based front-ends, to serve merelyas regulatory gatekeepers for activitiessuch as anti-money laundering (AML).

Banks are facing these threats totheir existing model at a time wheninvestments in customer service aretightly constrained and when consumertrust has been damaged by the financialcrisis. Also, regulatory, market and

customer pressures on their interest-based revenue (e.g., loans) mean theyneed to rebalance away from interest-earning revenues and towards revenuesfrom services (e.g., fee-based).

These service revenues are preciselythe ones that are most threatened bythird-party social financial sites likewesabe.com and P2P lending sites such asyes-secure.com. This competition couldresult not just in lost transactional feesbut also in far less regular contact with

customers, thus compounding the impacton revenues.

also offers opportunitiesfor banksCloud computing poses challenges forbanks, but also offers the tools andcapabilities to resist disintermediation byleveraging social/mobile networking anddifferentiated bundling capabilities for thechanging consumer profile.

Many banks are doing this already byinvesting in social media tools andcreating a social enterprise strategy,including linking to customers


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Facebook profiles and involving them incommunities ranging from basketball towealth management. Once a customeropts-in and clicks like, the bank gainsaccess to that individuals personalsocial profilewhich it can then blend

with its own customer/transactioninformation and other public, locationand web behavioral data to build a360-degree view of the customer.The customer is, therefore, willing toshare their social data and activities inexchange for increased personalization.

This, in turn, enables banks to generateand deliver relevant offers on a timelyeven real-timebasis via the customerspreferred channels. To do this, bankswill integrate business processes withadvanced analytical capabilities, includingusing closed loop analytics whichbynature of its capabilityaids in drivingcontinuous refinements to processes,services and products in real-time. Mobileand location-based data add an additionaldimensionsuch as a customer checkingthe availability of mortgage loans in aparticular neighborhood.

1. American Banker BankSimple, Bank of Internet Benefit from Fee Discontent October 27, 2011, by JohnAdams

Banks reaching out in the cloud

Citigroup has implemented various social media strategiesto communicate better with its customers, including a

blog that actively seeks questions and comments fromcustomers, a YouTube channel, and a service that will allowcustomers to talk to bank staff through Twitter or othersocial media. Bank of America uses Twitter as a customerservice and advice tool, and reports that customers find ita faster and more effective way of getting the help theyneed than traditional customer service channels.

Smart cloud-based bundlingputs the customer in controlFor banks, the main barrier to winning inthe social and mobile environment maybe cultural, rather than technological.Historically, banks have felt that theyown the customer. Today nobody ownsthe customer and online social financialproviders have grasped this reality. Newentrant Banksimple, known today asonly Simple, serves as a platform for itsonline customers to access mobile and

web-based financial services. Simple isnot a bank in and of itself but rather hasformed partnerships with a number ofbanking entities to provide its customerwide-ranging financial services centeredon a debit card relationship.1

Banks need to see their services not fromtheir own point of view, but from thecustomersand then innovate to deliveragainst that view.

The key to this innovation is bundling.

Core banking products such aschecking accounts are increasingly

undifferentiated. The real differentiationlies in the pricing and bundling forconsumers. Some banks might locatetheir product engine in a cloud, whileretaining a unique and sophisticatedbundling capability that pulls togetherand combines cloud-based componentsin responsive, collaborative and dynamicbundles relevant to specific customers.

This bundling opportunity varies bymarket, and goes beyond financialproducts. For example, banks in France

are bundling personal home care servicessuch as gardening. Further opportunitiesexist when providing customers withdigital storage safes in the cloud,bundled with value-added services liketax, f inancial and wealth managementadvice. Cloud-enabled digital walletscarrying a range of different serviceson smartphones is another high-potential area, although this will requireagreements with telcos over customerownership. In the absence of suchagreements, telcos might start providing

these services themselveswithoutthe banks.


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In developed markets, mass financialinsecurity is creating opportunities tohelp economically-pressed consumersstay out of financial trouble andreduce debt. Such opportunitiesinclude offering sleep-at-nightservices, using analytics to trackspending and alerting account holdersby email or text when they hit 75% oftheir monthly budget.

In emerging markets, the biggestopportunity is boosting financialinclusion for the 2.5 to 3 billionunbanked people worldwide. Todo this, banking and non-bankingorganizations are developing newservice models including microATMs, mobile payments systemssuch as M-PESA and G-CASH, andcrowdsourced/peer-to-peer micro-

lending communities such as kiva.org.

These emerging market models canoperate profitably at transactionrevenue levels below the radar of mostbanks. A crowdsourced micro-loan ofUS$25 is enough to start a business insome emerging marketsan amountthat would be more than swallowedup by transaction fees under atraditional banking model.

Cloud-based product andbundling opportunities varyby geography


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Trend 2

Private clouds come to dominate core banking

This new normal will challenge bankstraditional ways of translating their

business requirements into IT solutions.It will also dramatically reshape therole of the IT function, requiring a newgovernance model, new skills, newbehaviors, and new ways of sourcing ITinfrastructure and services.

At the same time, changing customerdemands mean banks will have to focuson their key differentiators and transformtheir operations by adopting a lower-cost,more flexible and more scalable operatingmodel, and by moving to a service-

oriented mindset. Cloud computing willhelp by enabling banks to break downexisting silos, decouple physical fromvirtual IT, and separate production fromdistributionall boosting their agility andcustomer responsiveness.

Data security drives choicesBanks appreciate the relevance of cloudsolutions for executing these changes. Atthe moment, however, many are reluctantto entrust their sensitive customer and

financial data to public cloud services runby third-parties. Data privacy and securityregulations in many countries prohibit the

storage and processing of customer dataoutside national borders. Banks are also

wary of the potentially disastrous impactof a serious breach of security or privacy,or of even a brief outage in areas such asATM operations, fraud monitoring or creditcard processing. Many banks, therefore,take the view that they should keep theircore banking processes under completecontrol in their own data center so theyknow where the data is at all times.

That said, someespecially newerbanks have proved willing to take afresh look and incorporate multi-tenant

cloud solutions into their core bankingactivities. For example, banks includingMetro Bank in the UK and Sofol Tepeyacin Mexico are using Temenos T24, thefirst production-grade core bankingsystem that runs in the cloud. Someleading US banks are using the Varoliicloud-based voice dialer. By using Varoliito deliver routine requests for borrowerinformation, SunTrust has reduced thenumber of inbound calls to its call center,shaved more than a day off its overall lossmitigation timeline, saved between $8and $25 per call, and cut first paymentdefaults by more than 60 percent.2

2. TMCnet.com Suntrust replaced predictive dialer with intelligent automated communications solutionfrom Varolli February 10, 2010 www.tmcnet.com/channels/predictive-dialer/articles/77047-suntrust-replaces-predictive-dialer-with-intelligent-automated-communications.htm

As cloud-based offerings cometo dominate the financial

services marketplace, the ability

for banks to integrate multiple

cloud-enabled service and

product providers will become

the industrys new normal.

This capability will be necessary

for offering compelling services

and products in the way that

customers want to consume

themand banks must prepare forthe new environment or risk being

left behind.


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Figure 2: Estimated spending on private cloud by financial services companies worldwide

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Alongside this early usage of external,multi-tenant cloud offerings, privatecloud modelsthrough virtualizationare

playing an increasingly pivotal role in corebanking by enabling banks to realize thecost, scalability and flexibility benefitsof cloud computing while preventingexternal exposure of customer data. Thisfocus on private cloud is underlined byindustry research among global financialservices companies showing that theyexpect spending on private cloud toincrease as a proportion of overall cloudspend (see Figure 2).

Such findings raise the question of wherebanks will target their cloud computinginvestments. As banks confidence in

cloud services grows and data regulationevolves over the next few years, webelieve their fears over security andprivacy will steadily decrease. As a result,banks use of cloud computing willexpand and deepenwith private cloudsextending beyond the enterprise (throughcollaborations and joint ventures), use ofpublic cloud increasing, and cloud modelsbeing executed in parallel at differentlevels of the technology stack, rangingfrom IaaS, via SaaS and PaaS, to BPaaS.

Advantages of Private Cloud

Reduces software licensing costs by centralizingacross enterprise

Efficient use of hardware and network assets via avirtualized model that serves to reduce expansion ofIT footprint

Can better absorb explosion of data withoutincreasing hardware investments

Ability to add descrete services under a hybrid model

Offers better management control to both businessand IT executives

$0

$5

$10

$15

$20

$25

$30

201520122010

e$26.4 bn

Est. 53% cagre$10 bn(38%)

e$5.2 bn(37%)e$1.2 bn

(30%)

e$14 bn

e$4 bn

$US Billions

Est. 108% cagr

Est. 24% cagr

Est. 46% cagr

Overall Cloud Spend

Private Cloud Spend (% of total)

Source: The Tower Group: Destination 2015 Spending on Cloud Computing in FS. By FS Senior Research Director Rodney Nelsestuen, June 2011.Note: Spending estimates based on assumption of no clear global cloud standards

Figure 2: Tower Group (The Corporate Executive Board) Destination 2015: Spending on Cloud Computing inFinancial Services, by Rodney Nelsestuen, June 20, 2011


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Banks commonly assume that aprivate cloud based in their own datacenter is the most secure option forcloud. However, the real picture ismore complex.

Are public cloud servicesreally less secure thanin-house?

In many cases, the securitymechanisms put in place by globalpublic cloud providers may actuallybe stronger than those in many banksinternal systems. While the headlinesgenerated by cyber attacks on cloudproviders may create the impressionthat they are insecure, there iscomparatively little public reportingon how often individual banks sitesare attacked or brought down.

There are a number of approachesthat may help banks overcometheir concerns over security andprivacy in the public cloud. One suchapproach is using a specialist third-party assurance provider to certifythe security architecture of a cloudagainst very strict criteriapotentiallyhigher than the standards the bankapplies internally.

Regulatory restrictions

To comply with the rules whichprohibit customer data to be passedbeyond national borders, considera public sovereign cloud concept.As explained earlier, this option isone whereby a public cloud providercommits to retaining data within theparticular territory. Also, to enable

customer data to be processedoffshore, banks can use watermarking,encryption and/or masking so that thedata is anonymized while offshore.The data can be de-masked on returnto the home country, making itidentifiable again.

Smarter privacy

Privacy is a further key consideration,including monitoring and

authentication of transactions. Withcredit cards, the current approach ofblocking doubtful transactions andcontacting customers is increasinglydisrupting the user experience andcausing dissatisfaction. By usingthree-factor authentication (e.g.,a smart card, a password, and abiometric identifier, such as a voicesignature) security in the cloud wouldbecome smarterreducing disruptionand increasing satisfaction.

Security and privacy in thepublic cloud: overcoming theconcerns


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Trend 3

Public cloud will dominate non-core and non-differentiatedbanking activities

Cloud computing will increasingly

provide banks with new lower-

cost operating models thanks to

virtualization, greater automation,

and the ability to push more

activities offshore. As these

benefits are realized, banks will

face decisions regarding thebusiness case for moving legacy

systems into the cloud or

building new cloud-enabled assets

that they will then integrate into

the legacy environment.

For banks to choose and pursue theright business case, a strong andwell-established process/application/technology architecture will be critical.For example, if a bank makes a concertedmove into BPaaS or SaaS, it will needcertainty over the continued availability,reliability and utility of the cloudplatforms underpinning them.

As ever, the optimal approach will

vary among banks. Not all bankingactivities will move onto the cloud inthe next five years. Adoption of cloudmodels generally has greatest impact inareas of the value chain with the mostvariability. Banks that manage highertransaction volumes with little variationmight find the best f inancial optionis to balance offshore labor arbitragewith the use of cloud computing.

Horizontal and back-office

processesWhile security concerns mean many banksare reluctant to use public cloud servicesin core banking, public cloud has a bigrole to play in banks horizontal and back-office processes not directly involvingsensitive customer data. Today, these

processes include email, office/workforceproductivity, internal collaborationand knowledge-sharing. In the future,public cloud use could also potentiallyextend to activities such as credit cardprocessing, check clearing, and analyticson aggregated data.

For banks, those enterprise processesthat are best suited to public cloudinclude procurement, HR and customer

relationship management (CRM).Salesforces CRM cloud has gained strongground among banks in the past couple ofyears, and Spanish banking group BBVArecently announced that it would migrateits whole workforce to the cloud-basedGoogle Apps suite.

Public cloud for non-core banking areasmay impact the economics of internalshared services. Consider it an alternativeto outsourcing with different economicsand less lock-in. These public cloud

services may be ring-fenced within theexternal provider, possibly on a nationalbasis as a sovereign cloud, so banks canstill have assurance over where their datais located.


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The benefits of cloud-

enabled agilityBy its nature, the cloud model is availableto everyone. So while the early adoptorswill enjoy a period of competitiveadvantage, others will catch up overtimeas happened with the initial wavesof offshoring. However, all banks standto gain significant benefits from cloudcomputing adoption, including new levelsof strategic optionality.

Specifically, cloud enablement makes newand bundled products and services easierto develop and provide, whether on astand-alone basis or through partneringwith cloud-enabled specialist providers.When services are ramped up, theinfrastructure can be scaled; if not, theycan be abandoned.

So banks based in mature markets canuse cloud computing to enter and scale

up in emerging markets more quicklyand at lower cost and risk. And banksin emerging markets will use cloudcomputing to reach their unbankedpopulations by leapfrogging physicalbranch networks and moving straightto electronic and mobile banking. Cloudenvironments will also facilitate M&Aand consolidation by making it easier tointegrate and divest businesses. Whenthe acquisition is complete, the bankwould begin the transition to the cloudby migrating data over wire, creating anasynchronous link among the data centersrun by the new entity.

BBVA banks on Google cloud

In January, 2012, BBVA announced its decision to migrate its entire110,000-strong workforce to Google Appsrepresenting Googles biggestenterprise contract to date.

The bank plans to use Google applications like Gmail, Chat, Calendar,Docs and Video Conferencing and other collaboration tools to achievea cultural change across the 26 countries where BBVA currently doesbusiness. The decision to distribute BBVAs data across a public cloudmanaged by Googles data center was drivenin partby the increasingmobility of the banks workforce. For example, much of the bankscomputing needs have moved to smartphones, tablets, laptops andcomputers used outside the banks walls.3

3. BBC Google persuades Spanish bank BBVA to use the cloud January 11, 2012


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The future of cloud computing in banking

Competition, collaboration and convergence

Whats on the horizon?

There are seven ways inwhich cloud computingwill impact future bankingproducts, services andtechnologies.

1. Customer relationships

will be redefinedThe overarching and most disruptiveimpact of cloud computing will be howit redefines the relationship betweenconsumers and their providers of bankingproducts and services. Cloud computingwill make these services more convenient,more accessible, easier to use, and morepersonalized to the individuals needsand lifestyle. This is both a threat andan opportunity as it remains to be seenwhether it is banks that lead this change

or, increasingly, non-banking entrants.

2. Cloud computing willsteadily progress at all levelsof the stackAs confidence grows and more bankingcloud products and services emerge,usage of cloud models will continueto advance at all levels of the IT stack.Currently, many banks are focusing onIaaS and/or SaaS, having virtualized their

infrastructure and started to use Saasfor undifferentiated activities. There isalso sporadic adoption of SaaS amongbanks that have yet to virtualize theirinfrastructure, enabling them to pursueIaaS in parallel with SaaS.

While adoption will continue, the pacewill vary by bank and geography dueto regulation, the status of their legacysystems and the levels of flexibility amongtheir employees. With cloud-based BPaaS,there are similarities with the way end-

users can scale up or down their spaceusage on the cloud today by provisioningor removing capacity. Banks can take thesame approach with their own systemsand processes.

Scale of IT infrastructure will alsoinfluence cloud computing adoption.

Newer and smaller banks built on client/server architectures have less overlappinglegacy systems and infrastructure,and will therefore be quicker to adoptcloud technology higher up the stack.Larger banks currently tend to focus onvirtualization, and may be culturally moreresistant to expanding their adoptionat the higher levels. That said, somelarge banks are already picking specificactivities and radically cloud-enablingthem with SaaS and BPaaSunderscoringthe fact that cloud computing adoption is

not an all-or-nothing choice.

3. Non-banking cloud-basedcompetitors will keep up thepressureRather than being technologicallyinnovative, the emerging generationof cloud-based, socially-driven moneymanagement tools are customerservices and experience innovators.They will continue to ramp up effortsto win customers not just from banks,but from each other. Banks must,therefore, continue to respond tothese competitive pressures in order toavoid disintermediation-by investingin capabilities around social media,analytics, and targeted product andservice bundling.


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4. Emerging market bankswill lead cloud-basedinnovationEmerging market banks generally have

less systems and infrastructure legacythan their counterparts in maturemarkets, making it easier for themto adopt cloud models. At the sametime, banking innovation in emergingmarkets is being accelerated by fastereconomic growth and distinctivesocial needs. Witness the success ofM-PESA in Kenya and other emergingcountries, and the provision of onlineand mobile market information forfarmers in India and Bangladesh.

For those emerging market banks toosmall to invest alone in a cloud-basedcore banking infrastructure, they maychoose to form a consortium to leveragea shared cloud. In this case, they couldcollaborate to build and share a newcore system that allows them to be moreflexible and create more products for theircustomers. In a number of Latin Americanmarkets, the largest two or three banksmight be able to invest millions of dollarson their infrastructure but they would bethe exception. In Panama, for example,there are nearly 50 banks that have assetsof fewer than $5 million.

5. Collaborative cloud-basedshared services will emergebetween banksIn a similar way to telcos sharing

network infrastructure, banks will startto collaborate to pool non-differentiatedactivities into joint ventures (JVs) usingprivate clouds within a closed group ofbanks. These JVs could provide sharedservices that interact with customers inmore engaging ways while simultaneouslyfreeing banks from the burden of routinetransactions. In the UK, for example,the ongoing check cessation programmeans check processing could be a goodcandidate for cloud adoption, enablingit to scale down cost effectively as thetransaction volumes decline.

Collaborative JVs could also be suited toareas that are integral to core bankingbut not differentiators with customers,such as security. By turning security into aservice that is shared with other banks andoperated via a joint venture private cloud,banks could stop duplicating investment,industrialize their security processes foreconomies of scale, gain new serviceoptions and have immediate access to thelatest apps. These collaborative privateclouds could even be hybrids poweredby a third-party, increasing the benefits ofcost and flexibility.

6. Cloud-enabledcollaborative bundling willexpand across and beyondfinancial servicesBanks growing use of cloud computingto enable dynamic and responsivebundling will trigger an industry-widedrive to make third-party financial andnon-financial products interoperablein the cloud. This will enable a bank tooperate as an integrator and aggregatorof a diverse array of products, usingits differentiated cloud-based bundlingcapability as the glue.

In this environment, banks will compete

either by being a financial servicesecosystem leader, in which case theyuse their technology as a platform forother companies in the ecosystem; oras an ecosystem participant, a role thatmay be most appropriate for smaller orniche players and which will leverage thetechnology provided by the ecosystemleader. To join this ecosystem, third-partyspecialists within and outside financialservicesfrom charge cards to conciergeservices to entertainment and sportswilmigrate their offerings to the cloud so

banks can integrate them more easily.


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Emerging markets: ATMs in the cloud?

For banks seeking to grow rapidly in emerging marketsand reach unbanked customers, the time and cost ofsetting up distribution represent major hurdles. Opening abranch or installing a new ATM is expensive and can takeseveral weeks. So third-parties could offer cloud-based

services that support rapid growth in a banks distributionnetwork and infrastructure. Examples might include telcosusing their network assets to offer ATMs or point-of-sale terminals in a cloud. The cloud could help overseascorrespondent banks conduct foreign transactions forsmaller institutions in their home country.

Currently, there is much discussion about

collaboration between banks and telcos,especially in areas such as mobile andcontactless payments. In our view, conflictover customer ownership means banksand telcos will mainly compete ratherthan collaborate. However, there will beexceptions. For example, a government-driven pilot in France involving banks,telcos and transportation providers isexpanding, and Barclays and Orange arecollaborating on contactless payments inthe UK. There is also scope in emergingmarkets for telcos to offer services to

banks, such as ATM and POS networks in acloud (see above).

7. Payments in the cloud willbe a key focusConsumers migration to digital mobileand contactless payments will affectbuying habits, channels and customerservice in all markets, and will impactall consumer-facing industries. Thepreparations for when these services

reach critical mass are intensifying

convergence and competitionbetween banks, retailers, telcos, cardissuers and other participants in thepayments value chain, especiallyaround the consumer interface anddigital mobile payments channel.

Banks are still an integral part of thepayments value chainbut they risklosing overall control as new entrantsclaim different parts of it. As with PayPal,the effect can be to sharply reduce thebanks role and direct contact with the

customer. With powerful competitorssuch as Google and Facebook now joiningthe market, payments in the cloud willremain a key focus, both as a service in itsown right and as a beachhead for otherofferings. Next steps could include telcosbundling savings plan payments into theirbills, and banks offering payments sharedservices to sectors such as telecoms. Thisfocus will be sustained by the cloudshuge potential across the entirepayments arena.


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Realizing the cloud-enabled future

Prioritizing strategy and execution

In the foreseeable future,

cloud computing will beomnipresent. No industrycan afford to ignore it.But its impact will varyin every case.

To move decisively and securely toits cloud-enabled future, it is vital

for each bank to have a clear andconsistent cloud strategy specificallytailored to its business, coupled withthe commitment, will and resourcesneeded to execute the strategy infull. Given the range of variablesand choices involvedfrom public toprivate cloud, from IaaS to BPaaSmapping out this journey is a complex,yet necessary task.

Overcoming organizationalbarriers

Many banks are facing a realitythat their current governance andorganization are not yet ready totackle such choices. If BPaaS is theoptimal solution for a particularactivity, what will prevent theCIO from pushing back in defenseof the legacy systems? And whatwill stop the Chief PurchasingOfficer from resisting new sourcingmodels on the grounds that buyingBPO, applications outsourcing,infrastructure outsourcing, hardwareand software separately has been thewinning strategy for many years?

The fundamental issue is that eachchoice around cloud computing

effectively means decommissioninga portion of the IT and process stack,ranging from business capabilitiesto infrastructure. The human capitalperspective may also be critical, sincecloud providers will not welcome anysignificant transfer of staff that wouldaffect their business model.

All of these considerations underlinethe need to prioritize both strategy

and execution in moving to the cloud.One without the other will fail.


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About AccentureAccenture is a global managementconsulting, technology services andoutsourcing company, with more than246,000 people serving clients inmore than 120 countries. Combiningunparalleled experience, comprehensivecapabilities across all industries andbusiness functions, and extensive

research on the worlds most successfulcompanies, Accenture collaborates withclients to help them become high-performance businesses and governments.The company generated net revenues ofUS$25.5 billion for the fiscal year endedAug. 31, 2011. Its home page iswww.accenture.com.

To find out more about how Accenturecan help your bank harness the powerof the cloud to achieve and sustain highperformance, please contact:

Emmanuel [email protected]

Emmanuel Sardet is the global Technologyand Infrastructure Services lead for

Accenture Financial Services, based inParis. His experience comprises more than20 years across consulting, technologyand outsourcing helping our clients totransform their IT to deliver more businessbenefit from strategy to run.

Emmanuel Viale

[email protected]

Emmanuel Viale is a Director of theAccenture Technology Labs, basedin the Sophia Antipolis Lab in the

South of France. He specializes inidentifying and delivering applicationsof innovative technologies forour financial services clients.

Additional ContributorsLaurie A. Henneborn

[email protected]

Laurie Henneborn leads the globalTechnology research team withinAccenture Research an in-house

network of professionals who havestrong knowledge of various industries,geographies, technologies, and functionaldomains, as well as research methods andtechniques. Laurie specializes in cloud andapplications-related topics.

David W. [email protected]

David Helin is also a member of AccentureResearch and is aligned to the globalbanking research team. He regularly

conducts strategic financial analysis onbanks worldwide and has also focusedrecently on the credit services market,cloud computing and equipment leasing.

or visitaccenture.com/cloudstrategy

Copyright 2012 AccentureAll rights reserved.

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