Expert opinion

How Clouds Help Banks Grow?

435
5 minutes

“Russian banking is unique: on the one hand, it is considered one of the most technically advanced sectors. It is an early adopter of cutting-edge technologies, such as Big Data, chatbots, and biometric identification. On the other hand, in terms of using cloud services, banks are quite conservative,” says Maxim Berezin, Cloud Service Development Director, CROC, who is sharing his point of view on the role of cloud technologies in modern banking.

When it comes to choosing between costly on-site equipment replacement and migration to the cloud, which is CAPEX/OPEX-optimized, most large financial organizations prefer the former option.

We feel, however, that the situation has been gradually changing since 2015, when the cost of borrowed money increased and many banks' incomes dropped. Challenges facing the financial sector are gradually increasing the cloud share in banks’ IT costs and the role of cloud services in solving various business tasks from improving agility to total digitalization.

Fierce competition and the need to capture/hold the market

Over the past few years, the regulator's efforts on improving Russian banking system reduced the number of Russian banks by 2.5 times, with the largest asset growth being demonstrated by the companies from Top 20 or Top 30. This explains the competition growth and ambition of some financial institutions to enter the Top League. However, their legacy cumbersome infrastructures are of little help.

Here is an example. SBI Bank, one of the Top 200 financial institutions by assets, decided to “reboot” its business, enter the retail remote banking market, and gain new competitive advantages by using a hybrid cloud. Rebuilding the existing infrastructure turned out to be not the best idea, since it was dramatically outdated, and they had no in-house expertise required for successful modernization. Eventually, the bank's IT managers came up with the idea of a comprehensive consulting project, during which we surveyed business processes and underlying IT systems. This large-scale survey resulted in an IT development roadmap for several years to come. The roadmap, in particular, assumed the migration of three dozen application systems to CROC's public cloud and hosting of some applications on dedicated equipment in a third-party data center. With the roadmap in mind, the bank can now solve tactical tasks, while consistently moving towards its business goal, with cloud resources ensuring better flexibility and manageability, which are especially important when rolling out new products.

Service quality improvement to reduce customer churn

It is believed that the backbone of Russian users is millennials, the generation, which is most receptive to technological innovations. That’s why it is critical to provide them with services in a digital way. In addition to increasing loyalty and reducing churn, digital services help drive sales. According to expert data, up-selling or cross-selling occur more often among those customers who visit a mobile app at least once every three months. And the more profit, the more often users resort to digital channels.

Red-taping and inviting customers to offices to solve complicated issues are the worst ways to win new and retain existing customers. Rather, this problem can be solved by high-tech products, designed to build an omnichannel communication, ensure clear cost control, and in some cases give access to various services, such as marketplaces or lifestyle assistants.

An example of the latter is The Waay service fostered by CROC Accelerator, which can be offered from our cloud, using a SaaS model. Based on a variety of transactions and using Machine Learning, The Waay analyzes bank customer behavior and develops personalized offers for them. The system analyzes past purchases and interests, and learns. For example, by matching family status with regular visits to restaurants, the app gives "stories"-like hints: what children cafes or pubs are open nearby.

In addition, from the point of view of bank product developers, a public cloud is the most user-friendly and effective working environment, since it facilitates organizing teamwork, testing new products without the risk to crash the infrastructure with production apps, and rolling out updates more often and efficiently.

Digitalization from A to Z and new product development challenges

Digitalization and technology help banks respond to the two aforementioned challenges: improve competitiveness and retain customers. Despite the fact that almost all Russian banks claim they are striving for total digitalization (according to KPMG, 86% of respondents said so), most of them implement the digital transformation program pointwise by completing individual pilot projects. In our opinion, the key reason is the same – managers’ conservative position and the monolithic nature of the infrastructure, which is not easy to change. Therefore, the greatest digitalization success is achieved by either very ambitious players ready to completely change their business development strategy, or pure online banks. In the second case, the bank has no offices responsible for about half of the cost of doing business, minimizes personnel costs by replacing routine processes with robots and voice assistants, and does not invest in its own static infrastructure, choosing the cloud instead.

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