By Rich Weissman
The buzz is that the cloud will help level the playing field for community and regional banks. But is this simply overhyped fog? Here’s what you need to know.
What will the future of banking look like in the decades ahead? How will things change, and what new methods will we be using to manage our banks? These are important questions that every bank management team should be asking, as we try to understand and plan for the next significant industry trend.
A leading trend is the growing use of cloud technology. It is already important and will become central to how we operate in the coming decades. Understanding and effectively using cloud technology will be key to ensuring future bank performance.
It’s not about the hottest new gizmo. No, cloud technology is not a flash in the pan. It is a serious new business methodology that is changing industries—including ours—globally. Embracing cloud technology, and not fearing it, will be important in bringing about a bright future for banking.
First, it’s important to clarify what the term cloud technology means. Cloud technology is the use of external providers that, through the Internet, deliver networked computer database processing and modeling services. Data for cloud technology is sourced from a multitude of databases. The processing and modeling occur outside of the bank’s internal information technology (IT), even though data can be sourced from internal data files. Cloud technology allows for multiple users within the bank to access information through external providers. These external providers can deliver the information in far more efficient and expansive ways than otherwise would occur if the bank were dependent on its own internal resources.
Cloud technology expands the world of the bank’s IT infrastructure well beyond its internal capacities and expertise. Cloud technology allows the bank to significantly add capabilities and competencies without commensurate infrastructure and human resources expenses. It moves the burden from internal resources constraints to external solutions.
Complex analytic tools
Why is cloud technology now getting so much attention? It’s simple. Banks are coming to the understanding that they must harness the data within their systems, and most banks do not have the internal resources to develop, house, process and provide access tools for its bankers in a way that meets today’s sophistication requirements for many different types of database applications. From a hardware and software perspective, and most importantly from the perspective of being able to access expertise and highly complex computing models, most banks simply cannot keep pace internally with their ever-growing information needs. Moreover, increasingly complex regulatory requirements necessitate increasingly higher levels of expertise.
Driven by competition, banks are searching for novel ways to manage these pressures. Since analytic tools and artificial intelligence models have become too complex in today’s “big data” world, and most banks cannot expect their IT staff to keep up and to provide the level of service given these complexities, new methods are needed. One cannot expect most banks to staff IT divisions with data mining scientists, mathematicians, statisticians and multidisciplinary specialists with expertise in database technologies across a wide variety of disciplines in various technology areas. It simply is not possible. By using cloud technology providers, and accessing their services through the Internet, a new world of state-of-the-art technology solutions become available. Cloud technology takes the stress off the bank and allows external solutions to fill in the gaps.
Here’s a simple analogy: Just as hospitals cannot internally produce their own magnetic resonance imaging (MRI) machinery or other highly advanced medical equipment, banks cannot internally produce their own big data systems, and they cannot manage or process them in an effective way. Things have gotten too complex. That is where cloud technology comes into play—turning to experts who can perform these critical functions through the Internet outside of the bank.
As a start, cloud technology works with massive amounts of data, including huge amounts of data over time. Because of its functionality, cloud technology can be used as a vital data warehouse and also act as a backup data recovery system. But more importantly, cloud technology is more than just a vehicle to access massive amounts of data. At its heart, cloud technology is about taking data and transforming it into intelligence through highly detailed modeling methods. By creating a data-mining capability through cloud technology, the bank adds value by acquiring artificial intelligence. Cloud technology should help the bank “connect the dots” in ways in which the bank would not otherwise have the capacity to do.
There are many types of cloud technology applications in banking. These include analytics and modeling for:
–Profitability assessment.
–Risk management.
–Customer behavior management.
–Process management.
–Sales management.
–Predictive analytics.
There are many advantages of cloud technology. These include:
–Cloud technology levels the playing field for smaller banks, in that banks of all sizes can access highly sophisticated analytic tools without the internal staff or resources that would normally be necessary to support such an enormous effort. It allows smaller banks to compete more effectively with all size competitors.
–Cloud technology changes the nature of the bank’s IT. Instead of being a division that internally produces and executes technology, the IT department becomes one that manages technology and outside resources. This shift raises the level of IT from tactical implementation to strategic management. Cloud technology allows the bank to engage in far more IT initiatives with many more providers and different tools than otherwise would be possible.
–Cloud technology adds to efficiency and productivity as it releases costs and capital from IT development and support to other areas of the bank.
–Cloud technology allows the bank to remain relevant. It keeps the bank current and gives its people tools that reflect how business operates today and into the future.
Certainly, the business of banking is changing rapidly, and new technologies are emerging at a rapid pace. Banks must keep up but must understand that the future is about partnerships, expertise and capacities. This approach requires moving from the old way of building and serving internally to a new approach of using cloud technology and the Internet as a solution.
For banks of all sizes, cloud technology is now front and center and no longer pie-in-the-sky. It is available and usable for banks today to allow for highly sophisticated and innovative analytic tools. These tools enable banks to remain relevant, competitive, successful and prosperous as they enter the next era.
Rich Weissman is the president and CEO of DMA, a national systems and service provider to banks and credit unions. The company provides management, profitability, marketing, and sales support. Email: [email protected].
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