The financial services and banking industry have been increasingly relying on cloud computing in 2021.
Cloud workload adoption in organizations from this sector stood at 54 percent in the United States alone.
This trend is set to continue as banks and other financial institutions adopt cloud technology to meet customer needs, enhance operational resilience, and support the creation of new products.
This article will discuss how banks use cloud computing for various purposes, such as big data analytics, artificial intelligence (AI), machine learning (ML), mobile applications, and more.
How Does Cloud Computing in Banking Work?
Cloud computing, as an on-demand service, provides users with access to shared applications and resources over the internet.
Banks and other financial institutions can store and manage data via remote servers instead of local storage.
Presently, many financial organizations that use cloud computing are opting for external cloud service providers or outsourcing solutions.
Nevertheless, this is changing as multiple large banks are transitioning or have already transitioned to multi-cloud.
Cloud Computing Use Cases in Banking
That said, let’s look at some cloud computing use cases in banking.
a. Cloud-based Customer Relationship Management (CRM)
One of the key areas where banks are leveraging cloud technology is through cloud-based customer relationship management (CRM).
CRM helps banks build and maintain valuable customer relationships by managing customer data, tracking interactions, summarizing feedback, and providing insights into customer behaviors.
Banks can better understand their client’s needs and provide more personalized services.
With a cloud-based CRM solution, banks can gain access to powerful analytics tools that allow them to identify trends in customer behavior quickly.
They can also use this data to segment customers into groups based on similar lifestyle choices or spending habits.
Enabling them to create targeted marketing campaigns tailored to each group’s needs.
b. Cloud-based Data and Analytics
Another application is in data and analytics.
Banks can now use cloud computing to store, process, and analyze massive amounts of data.
This allows banks to access up-to-date, real-time information about their customers’ financial activity and make more informed decisions.
Here, banks can quickly gain insights into customer behavior which helps them deliver better services at lower costs.
Cloud analytics can detect fraud or money laundering patterns before they become problems.
And the scalability of the cloud also makes it easy for banks to scale their systems as needed without investing in expensive hardware or software upgrades.
This makes it easy for banks to respond quickly to changes in the market and adapt their strategies accordingly.
c. Cloud-based Mobile Banking
Cloud-based mobile banking has become a popular trend in the banking industry.
According to Insider Intelligence’s Mobile Banking Competitive Edge Study, 89% of survey respondents used mobile banking.
Furthermore, a massive 97% of millennials indicated that they use mobile banking.
This reflects the growing trend for using cloud-based services for convenient, secure, and fast access to funds and other financial services from anywhere at any time.
Banks leverage cloud computing to provide their customers with an improved digital experience.
A solution that is not only tailored to their needs but also highly secure and accessible through any device or platform.
Cloud-based mobile banking allows users to check account balances, transfer funds, pay bills, and even apply for loans while on the go.
And it comes with high levels of security through biometric authentication methods like facial recognition or fingerprint scanning.
d. Cloud-based Security and Compliance
Banks can leverage cloud services to ensure that their customers’ data is secure, while also meeting increasingly stringent industry regulations.
Cloud technology provides a platform for banks to quickly update their security protocols and compliance procedures with minimal disruption to their normal operations.
Doing this can help banks minimize operational risk by ensuring that all customer data remains private and secure from internal and external threats.
The ability to quickly deploy new security measures helps protect banks from cyberattacks and other malicious activities.
This allows them to stay current with the latest standards for payment processing and data privacy, while also providing an extra layer of protection against potential fraud or unauthorized access attempts.
e. Cloud-based Payments and Fraud Detection
Cloud-based payments are becoming increasingly popular in the banking industry.
These solutions allow banks to process payments and reduce the risk of fraudulent activity securely.
Banks use cloud computing to leverage identity recognition technology that helps detect suspicious transactions and prevent fraud.
This technology enables faster transaction processing times and improved customer account security measures.
Another way banks are using cloud computing is to monitor customer usage patterns and spot potential fraudulent behavior before it has a chance to occur.
The bank can then put additional safeguards in place or block certain suspicious transactions from going through, thereby minimizing losses associated with the fraud.
Furthermore, by analyzing data from multiple sources, such as account activity, IP addresses, and device information, banks can gain insights into customers’ behaviors that would be impossible without the power of cloud computing.
Challenges of Cloud Computing in Banking
Yes, cloud computing is revolutionizing the banking industry, enabling banks to operate faster and more efficiently than ever before.
However, several challenges must be addressed in order for cloud computing to be successful in the banking sector.
a. Security and Compliance
These are two major concerns regarding cloud computing in banking.
Banks must ensure that all customer data stored on cloud servers is secure, and comply with applicable regulations set forth by government agencies such as the Federal Deposit Insurance Corporation (FDIC).
Banks need to have solid processes in place for user authentication, encryption of data at rest and in transit, and regular security audits.
And they must ensure that their cloud provider meets any safety requirements mandated by local or federal regulators.
b. Vendor Lock-in
Vendor lock-in is an issue that banks must be wary of when using cloud computing.
This occurs when a customer is confined to using one vendor for their services, as switching vendors would incur significant costs or require extensive modifications.
This can lead to higher prices and less flexibility in the long run.
Banks should ensure that they have the ability to switch vendors if necessary, as this can help them stay competitive and avoid costly transitions in the future.
They should look for vendors who provide open-source solutions, reducing vendor lock-in risk and allowing them to use multiple vendors if needed.
c. Lack of Standardization
Without industry-wide standards, each bank must create its own security protocols and other regulations for data storage.
This can be both time-consuming and expensive as the cost of personnel to develop these protocols may not always be worth the benefit for smaller entities.
Not to mention, it can be difficult to ensure compliance across multiple institutions without a centralized standard.
Without a universal set of guidelines for cloud computing infrastructure, the system lacks interoperability which could lead to confusion if different banks are using their own unique systems.
Cloud computing has revolutionized the way businesses operate.
Banks, in particular, have been quick to adopt this technology as it offers several advantages, including cost savings, scalability and increased security.
The use of cloud computing can help banks improve the customer experience while reducing operational expenses and improving efficiency.
In this article, we looked at how banks leverage cloud computing to become more competitive and profitable.