Our recently launched Culture of Innovation Index found that globally, 92 percent of corporate banks are either already making significant use of the cloud or plan to make additional investments in the coming year. Locally, banks are expected to invest 5% to 10% of their resources in cloud services in 2020, a figure that continues to grow year on year.

Banks are realizing that the cloud allows them to offer new services to their customers, improve the overall customer experience and respond more quickly to market demands. Coupled with the understanding that cloud and hybrid cloud environments can be configured to meet the required regulatory and security standards, banks are realizing that cloud capabilities are becoming major bets for financial institutions seeking innovation.

Better customer experience through faster deployment

Mobile commerce and a seamless digital customer experience have become central to business success over the past 10 years, with consumers and merchants expecting real-time service and intuitive usability. Neo-banks and fintech companies – most of which were born on cloud infrastructure and have a strong focus on user experience – are challenging the Big Four, adding further pressure on incumbents to innovate and add value for customers.

Incremental improvements or minor value-added services, such as offering basic cost information and categorization, are no longer a unique selling point for customers. Banks need to think more broadly about the services and tools that will truly change the game. For example, data-driven insights can be used to provide customers with timely notifications about their spending habits, helping them stay on budget.

It's important to remember that going cloud is the means, not the end – but it's the first step in this journey to an improved customer experience. Banks can reallocate the time and resources traditionally spent on maintaining IT infrastructure to activities that will delight customers. It also enables better collaboration with fintech companies and startups, streamlining IT integration through the use of application program interfaces (APIs) that fintech companies can connect to more easily. This allows banks to offer a greater range of additional services that strengthen the collective offerings of both parties.

Streamline operations and scale for flexibility

Banks have traditionally run their own data centers, which can be expensive, resource-intensive and difficult to scale.

To illustrate, imagine a scenario where a bank seeks to expand into a new country or territory. Historically, banks would want to buy new data centers to ensure their network could handle peak demand. However, banks were spending millions of dollars to manage and maintain data centers that were only partially utilized. Additional scale needed to be built into these operations, which may not be achieved in the short term.

This operating model is highly inefficient, as the infrastructure must be ready to handle peak demand from the outset, even if volumes are typically significantly lower.

Using the public cloud's "operating expense" (OPEX) model, where services can be scaled up and down according to demand, provides much greater flexibility and cost optimization. This model also enables banks to focus their resources on customer experience innovation and faster product iteration, rather than behind-the-scenes support.

There has been some reluctance on the part of banks to adopt the cloud because it requires moving sensitive data to a new environment, which is perceived as opening up security vulnerabilities. It is important to engage regulatory authorities to ensure the compliance of these systems. However, banks are increasingly realizing that the big cloud providers are spending more on security than banks could on their own. And these cloud providers can also engage national regulatory authorities and provide a holistic view based on their experience in a number of markets globally. In addition, hybrid cloud environments, which combine the benefits of public and private cloud, allow institutions to take a "best of both worlds" approach.

Embracing the cloud enables banks to offer better customer experiences, increase the speed of innovation and streamline operating costs: key areas to win for banks with the rise of nimble neo-banks and nimble fintech startups.

Philip Finnegan, Managing Director Asia Pacific at ACI Worldwide