By Chris Thomas
If you asked bank CEOs to name the one technology investment that delivered the greatest payoff for their organization over the past year, cloud computing likely would rank near the top. After all, it was the cloud that enabled banks to respond and recover quickly during the pandemic. A stay-at-home workforce, mobile customer applications, virtual meetings and distributed operations all relied on cloud-based technologies.
So it’s no surprise that the pandemic sparked a rise in corporate spending on public cloud IT infrastructure, which reached $312 billion last year, a rise of 24 percent compared to a year earlier, according to IDC.
But for all the benefits banks have gained from their investments in cloud computing, they have only scratched the surface. Cloud has the potential to help banks do even more.
So far, most banks have used cloud technology to reduce costs and modernize their infrastructure, efforts that largely have taken place within their IT departments. But bigger payoffs can be found when banks use cloud-based advanced technologies across their organizations to transform their businesses and create new sources of value.
In fact, banks are beginning to see the potential of cloud-enabled technologies like artificial intelligence, machine learning, computer vision and natural language processing to make their businesses more agile, scalable and innovative.
This is borne out by a Deloitte report on the state of AI adoption, which found that “making processes more efficient” and “enhancing existing products and services” were the top two benefits corporate executives sought from AI. However, executives from organizations with more experience running AI programs said “creating new products and services” was their top AI objective. This suggests that as the benefits of AI become clear, it increasingly is seen as a tool to transform the business.
Capital One, the largest direct bank in the U.S., with 70 million customer accounts, and the third-largest U.S. credit card issuer, last year became the first U.S. bank to shift entirely to the cloud with Amazon Web Services, exiting all its legacy data centers. The shift allowed the bank to provide a real-time, on-demand personalized experience for customers through its popular mobile banking app.
It has developed an intelligent assistant, known as Eno, that helps customers find real-time answers to common questions and banking needs. Eno also monitors customers’ spending data and proactively reaches out when it spots an unusually large charge and can help the customer take action to fix it.
Banks are also using the cloud to rapidly transform their core lending business. A leading European commercial bank developed an automated loan application process by reengineering the loan origination design using AI in just three weeks. The program reflected research that found customers wanted a streamlined process, mobile access and quick credit decisions. The new system produced an immediate rise in customer satisfaction scores. Better still, the program continued to achieve revenue growth and reduce the cost of account management by as much as 90 percent. Apart from optimizing the existing value propositions it enabled the bank to support special COVID loan programs in record time and has opened up new revenue channels by selling small and midsize business loans via major marketplaces through an embedded market proposition.
Perhaps one of the most notable examples of how the cloud can create value in the banking sector is Marcus, the online bank established by Goldman Sachs, which went from conception to launch in just 18 months. Four years on, Marcus has $1 billion in annual revenue, 5 million customers, $92 billion in deposits and joint credit products with Apple and Amazon.
With such dramatic benefits, banks are eyeing cloud-based solutions for a wide rage of business purposes, such as client on-boarding and servicing, liquidity management and digital banking. Modernizing the application portfolio through the cloud is becoming a best practice, not an isolated activity.
The cost of a cloud-powered business transformation can seem daunting, especially at a time when banks are concerned about managing expenses. Self-funding can be a way to address this concern, while enabling the organization to move quickly on cloud initiatives that improve efficiency, spark new revenue opportunities and give them a durable competitive advantage.
Self-funding can take a variety of forms, such as spend optimization techniques, data center buyouts, tax and accounting strategies, ecosystems investments, and other savings opportunities. They are designed to help the bank get benefits quickly while minimizing initial expenses.
The pandemic demonstrated the value of the cloud investments made by banks in recent years, and it accelerated many cloud initiatives that were already in process. But there is the potential to do much more with the cloud. Banks can significantly accelerate their digital transformation by adopting a cloud-first mentality. They stand to gain not only a more efficient organization but stronger customer relationships, new revenue sources and a differentiated brand in highly competitive markets.
Chris Thomas is a principal in Deloitte Consulting LLP’s global technology practice and leads the professional services firm’s U.S. banking cloud services team.
