March 31,2016 | Published in CPI Financial
With the amount of hype and marketing around cloud technology, it would be easy to assume that it is a new concept, but in fact it was first talked about in the late 1960’s. However, the reality of cloud computing has evolved tremendously since then, but it wasn’t until the popularity of services such as Salesforce.com that the concept of delivering applications over the internet gained serious traction. Later, when more and more cloud service providers stepped in, businesses across a range of industries such as retail, entertainment, healthcare, education, manufacturing and telecommunication began to move towards cloud.
In the financial services industry, firms have been slower to adopt cloud technology, primarily driven by concerns about data security, regulatory compliance, service quality and performance stability. The absence of comprehensive, compelling cloud-powered offerings from banking software companies didn’t help. Today’ this is changing. In fact, a study conducted by Skyhigh Networks found that financial services firms increased their cloud usage by 32.1% during the period between Q2 2014 and Q2 2015. However, the focus has mostly been restricted to email, collaboration platforms, CRM, application testing and data storage. The most mission critical banking applications are still run on legacy systems, which results in huge spending simply to maintain the systems – or to put it another way “run the bank” rather than “change the bank”. This, in turn, limits the banks’ ability to enhance their customer service capabilities and digitize their operations.
As customers become increasing accustomed to having access to services anytime, anywhere on their mobile devices, this has created more challenges for banks. The FinTech companies and Challenger banks have exploited these challenges, designing their services to address customers’ changing needs. Not only has this enabled them to get high customer approval ratings but also to deliver products and services with speed, efficiency and at dramatically lower costs. The use of advanced, flexible technology is one of the key success criteria. And by putting their solutions in the cloud they have been able to roll out products and services very quickly, reaching a wide customer base with much lower upfront costs. They use digital processing, can adapt swiftly to evolving business conditions, scale up/down easily and more importantly – “pay-per-use” to keep their operating costs low. FinTech companies such as One Credit in Nigeria, Premier Credit in Kenya, Mao Solidaria Microfinance in Angola are already leveraging the benefits of cloud.
According to a McKinsey report, around 80% of Africa’s population today is not connected to formal financial services and as per MasterCard, only 2% of retail transactions in Africa are electronic. However, mobile money accounts have been successful in extending basic financial access to 12% of the adult population and this segment is expected to generate up to $1.5 billion in revenue by 2019. Hence, a huge opportunity exists for banks and financial institutions to harness the true potential of cloud for extending services in Africa. Moving to the cloud would be very beneficial for African banks and financial institutions as it would help them reduce the time to market, reduce the cost of operations, improve levels of business agility while helping them to get closer to their customers. It is an effective tool to innovate, digitize and fend off competitors. Cloud capability enables banks to expand their IT capabilities faster and more cost-efficiently than building their own infrastructure, leading to quicker return on investment. Banks, today, need the capability to launch innovative loan offerings quickly, make better credit decisions faster, reach customers across multiple channels and incorporate insights driven by analytics.
It is interesting to note that banks and financial service companies with large customer bases that are already involved in digital transactions are keener to move to cloud as they understand the advantage and wish to extend the same digital experience to other aspects of the customer relationship. Today’s customer prefers a similar and seamless experience in their daily transaction touch points, which may range from shopping online to applying for a loan and booking for travel to payments or money transfers. Lending forms an important growth area for the banks and hence, it should be considered as a priority for moving to cloud. A robust technology platform powered by cloud can facilitate the setup of a completely automated and digital loan origination process where the customer does not even need to visit a branch. The continued rise of self-servicing is supported through the combination of mobile and web channels hosted on a cloud setup. Advanced analytics can give predictive insights on the most appropriate segments to target, while identifying patterns for ideal/delinquent customers and predicting, early, which customers are most likely to turn delinquent. Together, these capabilities powered by the advantages offered by cloud can give a huge boost to growth and efficiency.
To facilitate increased cloud adoption in Africa a number of challenges needs to be addressed, such as reducing the complexity in moving banking business applications to cloud, managing both hosted and cloud setup simultaneously, coping with the poor network connectivity and addressing regulatory concerns. In addition to the complex IT ecosystem in a typical bank, the fact that not all applications are cloud ready, creates scenarios where some applications are moved to cloud while some still remain on-premise. The bank’s IT team will have to handle both setups with their individual requirements. The biggest barrier – the prevalence of stable, available and cost effective internet connectivity is also improving tremendously in various parts of Africa paving the way for cloud adoption.
Cloud-technology offers banks and financial service companies tremendous benefits but, like all other technologies, it should only be adopted after a careful assessment of their evolving business requirements and evaluation of the capabilities of the solutions in the market. They are the best judge of when to make the move, but if the signals are considered a strong indicator, the train has already arrived and may be just about to leave.