The Cloud is Lifting

The increasing demands from digitally savvy corporate and consumer customers are forcing financial services providers to fundamentally calibrate their operating and business models, and it is cloud-based solutions that will bring banks the scope to provide smarter and more agile services

Digital transformation has been a key battleground for banks in the Middle East region—a competition that was intensified by the outbreak of the COVID-19 pandemic. Cloud adoption is the backbone of digital innovation and it is shaping the future of the financial services sector. The cloud gives banks access to on-demand resources, such as networks, servers, storage and application programming interfaces (APIs) that can be rapidly provisioned and released with minimal management or service provider interaction.

“Digital banking and cloud computing are changing how we bank,” said IBM Industries. The financial services sector in the region is abuzz with talk and activity on digitalisation strategies including a high level of cloud adoption, open banking, digital payments and customer digital onboarding as part of a broader strategy to meet customers’ evolving needs and demands and enhance the experience.

The advancements in cloud-native capabilities powered by artificial intelligence (AI), real-time analytics, machine learning (ML) and blockchain are creating ideal conditions for financial services providers to enhance their services and products from the front, middle and back-office.

As banking shifts online and to mobile devices amid changing customer preferences, financial institutions are increasingly looking to outside partners for help tapping into emerging technologies and designing new customer experiences. The increasing demands from digitally savvy corporate and consumer customers are forcing financial services providers to fundamentally calibrate their operating and business models.

Cloud computing offers a dynamic platform to develop, trial and offer innovative services, driving operating and business model transformation. It enables banks to store and process data in remote servers instead of local systems while offering several benefits

such as increased security, faster processing speeds and lower costs. “Cloud computing has opened countless doors for financial services firms, giving them the freedom and flexibility to innovate, without the time and resource commitments that are unavoidable with on-premise systems,” said PwC.

Whether a bank is considering migrating or modernising mobile applications, scaling digital banking operations, making data-driven pricing decisions or securing customer’s mission-critical data, cloud banking is the most effective and cost-efficient way to do it without the need for skilled, in-house talent.

Cloud banking

The cloud is moving to the forefront as the focal point for information technology leaders, C-suite executives and board members as the future of financial services is digital. “Facing changing consumer expectations, emerging technologies and alternative business models, banks need to start putting strategies in place now to help them prepare for this future,” said Deloitte.

Leaders in the banking and financial service sector across the Middle East are increasingly recognising that the cloud is more than technology, but is a destination for financial institutions to store data and applications and access advanced software applications.

The advancements in fintech and the booming development of new APIs are increasingly driving banking to the cloud as the industry is looking to adopt the agility, speed and innovation more commonly found in the technology sector.

Open Banking

Open banking is shifting the financial services industry toward hyper-relevant, platform-based distribution while offering banks a window to expand their ecosystems and extend their reach. The innovation is being driven by regulatory requirements, technology and competitive dynamics that are calling for banks to as e-commerce. “As banks continue to make progress in digitising the customer experience, they must also remember that omnichannel includes the critical human side of the equation,” said McKinsey.

For banks, the adoption of multichannel banking to ‘seamlessly’ and ‘consistently’ interact with customers is a ticket to compete and maintain a competitive edge in a crowded market such as the Middle East region.

use APIs to make certain customer data available to non-bank third parties.

Built on the cloud, open banking platforms are facilitating ever-increasing on-demand needs of financial data including transactions and consumer experience for third-party providers, payment initiation service providers and account information service providers, said IBM Industries.

The Middle East region is one example of an emerging global open-banking microcosm. PwC projected that the innovation has the potential to reshape the financial services landscape and several financial centres in the emerging markets are making considerable moves in this space.

Bahrain is implementing a Europeanstyle regulation-driven approach and the UAE has adopted an Americanstyle market-driven approach under the guidance of the Abu Dhabi Global Market and Dubai International Finance Centre.

Saudi Arabia is also implementing a market-driven strategy, but the kingdom’s approach is inclined towards a more formal regulatory framework though its regulations don’t follow Bahrain in requiring the opening up of APIs, which facilitate data sharing, or in mandating security standards.

New York-based Tiger Global Management led a $12 million funding round for Tarabut Gateway last November as the fintech firm seeks to expand its open banking platform into Saudi Arabia and North Africa.

Omni-channel experience

Meanwhile, the ongoing coronavirus crisis has undeniably disrupted the customer experience in financial services driven by technological innovations that introduced more options for consumers to interact with banks.

Though digital banking has become the norm in the financial services sector, there are still customers who value the personal touch and banks need to borrow a page from industries that value customer experience such

Customer data

Cloud technology has always had the potential to bring about profound changes to banks and the entire financial services sector given that the innovation offers unprecedented opportunities to capture value by leveraging customer data. Cloud technology and especially the software as a service (saas) model offers banks several opportunities such as easier customer data analytics and sharing, improved marketing time, cost reduction and enhanced flexibility and operational efficiency.

Data’s worth depends on its accessibility and application as customer insight plays a critical role in product development and customer communication in the banking sector. “The cloud is the only place where customer data gains scale, agility and the power to drive reinvention so a business can soar,” said Accenture.

The use of cloud computing has been an enabler of advanced analytics, as these computer system resources provide a space to both store and analyse large quantities of data in a scalable way, including through easy connectivity to mobile applications used by customers.

Data is the manual that provides banks the insight to meet customers’ preferences and expectations. Similarly, it is from customers’ data that financial institutions explore new avenues of growth or new business models.

With several cloud solution providers such as Microsoft, Oracle and Amazon Web Service expanding their footprint in the Middle East, banks are tapping into

the cloud to boosts operational efficiency while improving their ability to partner, source and collaborate with fintechs.

“Data security concerns are top of mind for bank leaders,” said Deloitte. Industry experts say that an important part of understanding cloud computing is considering how legacy banks’ infrastructure and capabilities may be limiting their ability to detect and address new risks and vulnerabilities, and how cloud technology can help.

Migrating to the cloud enhances an institution’s data security due to the tools that are native to each cloud service provider’s environment and the fact that cloud-based platform providers typically take responsibility for the security of the lower-level infrastructure layers. McKinsey said to make effective risk decisions, banks have always had to convert customer data into insights, but the requirements in the current operating environment are massive and cloud-based solutions provide risk management teams the potential to easily and quickly integrate different data sources and systems.

Digital payments

As the demands from digitally savvy corporate and consumer customers increase amid competition and increased regulation, financial services providers are being forced to fundamentally calibrate their operating and business models.

Cloud adoption has been driving innovation across the payment services sector enabling high data security and cost-effectiveness as financial institutions keep on introducing new services and products to maintain their market position and meet customers’ evolving demands and expectations. IBM said, “Beyond cost reduction and scalability, speed to market is perceived as the major benefit by cloud users.”

Payments represent the most frequent touchpoints between banks and their clients, making investing in the sector more important than ever. Paymentsas-a-service (PaaS) allows banks to use the software as needed without having to own or maintain it themselves, while serverless architecture removes the need for financial institutions to run their own servers, freeing up time and resources for customers and operations.

“Payments-as-a-service players operate cutting-edge cloud-based platforms to provide specialized services, such as card issuing, payments clearing, crossborder payments, disbursements and e-commerce gateways,” said McKinsey.

The technological advancements

together with the evolving customer requirements have driven major innovations in the payments industry. It is also offering financial institutions a window to be more innovative and efficient in delivering services.

CLOUD COMPUTING HAS OPENED COUNTLESS DOORS FOR FINANCIAL SERVICES FIRMS, GIVING THEM THE FREEDOM AND FLEXIBILITY TO INNOVATE, WITHOUT THE TIME AND RESOURCE COMMITMENTS THAT ARE UNAVOIDABLE WITH ON-PREMISE SYSTEMS

– PwC

Banking with success

Though several specific technical challenges such as latency, data residency and transactions, personally identifiable information and regulatory risk impede wider cloud adoption in the financial industry, having cloud-native services offers more security advantages allowing banks to meet local regulations, such as data hosting.

Banks in the Middle East region such as Qatar National Bank, First Abu Dhabi Bank and the Saudi National Bank operate in multiple jurisdictions and cloud computing allows them to meet evolving regulatory reporting requirements, a critically important capability in an industry where cross-border transactions are the norm.

Migrating to a cloud-enabled platform can also help banks conduct intraday liquidity and risk calculations and mine trade surveillance data to detect antimoney laundering and other fraud-related issues. Technological advancements such as the cloud are opening countless opportunities for banks, giving them room and flexibility to innovate, without the time and resource commitments that are

unavoidable with on-premise systems.

Cloud solutions also allow banks to streamline upgrades by reducing the substantial time and effort that is spent configuring new upgrades and capabilities on disconnected legacy systems by allowing an enterprise’s technology partners to handle both the software and hardware upgrades. The move lowers recurring technology operating costs and minimises the risk of obsolescence in an age of rapid evolution.

Banks that are adopting the cloud are bringing new capabilities to market more quickly, innovate more easily and scale more efficiently while addressing surging cybersecurity risks. Financial institutions can choose a cloud strategy by service type including backend as a service (BaaS), infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS).