10 minute read
A funny thing happened on the way to the Cloud
ACI Worldwide’s Head of Public Cloud, Ciaran Chu, says it isn’t just a technology solution – it’s an opportunity to fundamentally reshape banks’ business models
As head of public Cloud services at payment solutions provider ACI Worldwide, Chu is involved in the digital transformation journeys of many of the 6,000 organisations it works with, including 18 of the 20 biggest banks globally. And while some may be slower than others, for those that ‘get’ Cloud’s full potential, he believes it can radically change the way they operate and their future profitability. And it all comes back to payments…
MONEYFEST MAGAZINE: Can you give us a scene-setter – where banks are now and where they are heading to in their Cloud journey?
CIARAN CHU: The big challenge many banks will have in the next three-to-five years is that their traditional business model is under attack: they’re able to charge less fees and interest rates are at an all-time low. So, we’ll see an acceleration of Cloud technology through artificial intelligence (AI) or other data aggregation services that allow them to create alternative value streams they couldn’t today on-premise.
Those that will be really successful will move components incrementally to create value, assimilate the learnings and work in a truly agile manner. Ultimately, they’ll be able to unlock value and transform the business, piece by piece, diversifying their revenue, changing their cost base and, ultimately, spending more time on consumers and less on maintenance.
A lot of banks and intermediaries I speak to, be they merchants or processors, are saying: “I want to have a faster speed to market. I acknowledge there may be more upfront cost involved in that because I’m running two platforms – I’m not fully optimised when I’m deploying it in the Cloud – but, ultimately, my major driver is to get faster time to market and increase my agility. By doing that, my expectation is that I'll get new revenue streams that I wouldn’t have got otherwise in the short term. In the long term, much as I’ve done in an on-premise environment, I’m going to optimise my workloads as much as possible, to ensure that my cost comes down.”
MM: Are the neobanks really stealing a march over the 'heritage' banks?
CC: The well-worn cliché is that neobanks can build everything from scratch that an incumbent would like to have, whereas the incumbent banks have the mass market adoption criticality. However, while, for example, US neobank Varo got its banking licence, we see the ability to get licences becoming more difficult in the US and Europe. What’s going to play in traditional banks’ favour is being able to work within ever-increasing scheme changes. On the other hand, the big advantage that challenger banks have is their DevOps kind of pipeline, building it from scratch, being able to use just the solution capabilities they need, when they need them – whether that’s core infrastructure or surrounding Cloud tools like data analytics or AI – because, from a consumer standpoint, it’s about being able to interact.
Ultimately, they’ll be able to transform the business, piece by piece, so they’re diversifying their revenue, changing their cost base and, ultimately, spending more time on consumers and less on maintenance
Nobody gets it right first time, it’s about faster iteration, and neobanks can release on an hourly basis and get customer feedback, whereas a lot of incumbents are tied to being able to change their datacentres and hardware availability.
MM: What other issues do incumbents face with Cloud migration?
CC: Their biggest challenge is deciding what the right strategy is and committing to it, which comes back to culture. There are different approaches. The first approach is the speedboat challenger bank, but there are a lot of startup costs associated with that. The second is tying what they’ve built back to their great data and insight and making that a frictionless experience. The third is ensuring they’re getting the right skills in. With a massive shortage of technology talent, they’re competing against big tech and fintech for the best. Otherwise, it’s the same people, with the same processes, just with a different name.
The approach we’re seeing working really well is picking off a specific problem, like standing authorisation, putting that into the Cloud, then building off the back of that. We’ve got a couple of large global banks doing that and it means their guys are getting used to running it, they can optimise it, and it gives them a proof point to move more of their business processing in. It’s easier to take this approach, then think about how to define and design a slick infrastructure, then fit their data over the top, to ensure they reap the benefits of being faster to market. They can build their DevOps capabilities out from scratch, as opposed to trying to move their existing process and procedure across, and then work out how to do the DevOps piece. As I said before, it’s about unlocking business value incrementally. If they can pick off a piece of capability that’s causing them an issue, then execute against it in a timely manner, that helps start the flywheel, whereas migrating everything just because it’s the Cloud, without a business strategy or specific driver, is just swapping one thing for another.
MM: How can banks move from innovation theatre to getting it done?
CC: Their issue has not been a shortage of good ideas, it’s been the ability to bring them to life. Some very good innovation organisations have sat within banks, but when they get to the stage of bringing their ideas to life, they have to come back into the hurly-burly of the bank infrastructure and try to get their change prioritised in the in-house system. A quandary, for several years, has been how to keep an innovation hub as an entirely separate entity. Do they set up a fintech accelerator lab, as a lot of the banks have done? And, if so, how do you tie it back to the core bank capability?
For me, the Cloud is a gamechanger because, whereas in the past you’d have had to schedule in a change and then had it made but not necessarily had the right analytics data to monitor its success, with the Cloud you can spin up your idea in minutes, see how much it’s costing you to run, and what customers think, because it’s dynamically scalable. You can then add new capabilities and, crucially, migrate other operations towards that faster-to-market, more simple maintenance model.
MM: Where do banks look for those new business models and revenue streams? CC: The most logical place to find revenue outside transaction fees – with the caveat that, while revenue fees per transaction are falling, the volume of electronic payments,
Does it add up?
Revenue fees per transaction are falling but volume of low-value payments is rising
especially off the back of COVID, is rising – is through improved customer experience. The easiest way to do that is by improving transaction convergence or giving customers more contextual data to go about their daily lives.
The challenge for established banks is their spaghetti architecture – a customer has a retail account and a home insurance account, for example, but those pieces of data are held in different databases, making it hard to pull together a complete data picture of that client.
Meanwhile, the neobanks, particularly in Europe, can leverage open banking to pull together aggregated account information – because they’re Cloud native with the AI capabilities Cloud providers give them. It helps give consumers a more seamless experience, driving more transaction volume, which in turn enables them to provide more contextual they need it, is attractive from an operation, information for consumers looking for that maintenance and resource standpoint. easy button. The third big benefit of PaaS is the
That’s going to be one of the big ubiquity of the experience. Given how battlegrounds. Can the incumbents fast the market is moving, banks need to simplify their data structures and respond to that in an effective time period. commercialise the fact consumers trust PaaS is a neat solution because it allows them to hold information? them to unlock new capability as they
And who wins? Is it the trusted bank, need it, using application programming which has a lot of information it can’t quite interfaces (APIs). This is massively powerful get together today, but, through the Cloud, and transforms their go-to-market and can use the help of providers to better customer experience, not to mention the aggregate that info and make it available? bank’s cost base. Or, is it your neobank that’s jumped straight in and is making it so easy to use its product MM: And what can ACI Worldwide and aggregate your accounts? That’s bring to the table to help banks going to be really interesting one to navigate this changing environment? watch because, ultimately, with transaction CC: We’ve huge experience of supporting fees, it’s currently a race to the bottom. clients running mission-critical systems in their own datacentres. But we’ve also been on our own Cloud journey – we now have our own private Cloud business – which gives us a massive advantage in that we understand what it takes to migrate to and operate in the Cloud. So, I think our own experiences have really resonated with clients, because they can come to us to ask questions like ‘how do I solve the HSM (hardware security module) latency issue?’ and we’ve been able to say ‘like this… you can run it in your own datacentre, and here are the things you need to think about in order to connect to the payment application in the Cloud. Or, alternatively, here’s our As a bank colocation provider’. MM: Do you think banks will relinquish traditionally in-house moves towards the Cloud, We use our own middleware to connect our different applications, payment services? there is a natural to make them seamless CC: As a bank moves towards the Cloud, there is a natural pause, pause, a point for it to consider what for clients, and particularly to API-enable them, so that customers can a point for it to consider the bank itself come in and use the what the bank itself wants to offer and what it can outsource. wants to offer and what it can services they need, when they need them. That’s really helped us The first big advantage outsource think, customer-first, of payments-as-a-service about how we can make (PaaS) is being able to focus on customers, customers’ lives easier in so far as being able while outsourcing the technical to consume the gamut of ACI’s technology infrastructure. The second is that many in a really seamless manner, so that they banks are realising the Cloud journey can go to market faster, innovate faster, and requires different technical skills, which also maintain their applications in a far they might not have in-house to be able more seamless manner – which, given the to execute as quickly as they want. So, the amount of regulatory oversight coming idea of consuming a service, as and when in, is in itself a massive challenge.
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