What Is Cloud Computing?

Cloud computing is the practice of using a network of remote servers hosted on the internet to store, manage, and process data rather than a local server or a personal computer. In lamens terms, this process delivers various computing services like software, networking, servers, storage, intelligence, and analytics through the cloud (or internet), offering availability to those services on demand without the hassle of being actively supervised by a user.

It has grown substantially over the years, positively disrupting everything we know, from how we live our lives to how we operate business processes.
In fact, cloud computing has become so popular that it more than doubled within just three years — from $30 billion to $61 billion — and is projected to reach more than $76 billion this year and more than $390 billion by 2028.

What Are the Five Main Types of Cloud Computing?

Businesses that deploy cloud computing have three deployment system options to choose from when setting it up. Which one is implemented depends on the organization and its needs.

Public

Public clouds are those provided by a third party and shared by 'the public' of businesses and people with the authorization to access the computing solution. According to Google, public clouds are a viable alternative to public, offering "nearly infinite scalability and self-service provisioning to meet workload and user demands."

Private

On the opposite end, there are also private cloud computing solutions. These solutions are offered to a single person or business rather than shared with the public.

It can be provided through the internet or a private internal network, offering users higher security and data privacy. Some examples of private cloud providers are IBM, Microsoft, NetApp, Cisco, and Oracle.

Hybrid

Hybrid clouds are another type of computing that integrates multiple clouds to perform tasks. Through a combination of private and public cloud elements, an organization can leverage the former in the IT department and deploy the latter among teams that aren't as high risk for cyber attacks and fraudulent activity/breaches.

The leading benefit of this solution is the ability to adapt or change directions wherever necessary. In a digital world constantly evolving, this is a crucial advantage to have on hand.

How Is Cloud Computing Used in Banks?

Cloud computing is used in various ways in banks, particularly those moving to the digital world and seeking to improve the customer experience and satisfaction of today's technologically-advanced consumers. A recent report from the Congressional Research Service found that only 8-10% of global bank business is conducted in the cloud currently, despite many more aspects of banking business being eligible for cloud service solutions.

In fact, any solutions a bank's current data center provides can be replaced or supplemented by one of the previously mentioned cloud computing deployments.

Benefits of Using Cloud Computing Technologies in Banking

"Technological innovations will be the heart and blood of the banking industry for many years to come, and if big banks do not make the most of it, the new players from FinTech and large technology companies surely will." — David Brear, CEO and co-founder of 11:FS

Aside from simply being a viable competitor to FinTech and neo banks, banks and credit unions will also benefit from these advantages of using cloud computing technologies.

Lowered Infrastructure Costs

Cloud computing can save banks money in several ways, from a reduced need for hardware, labor, and maintenance to saving on two major models the investment typically follows: Pay-as-you-go and only-pay-for-what-you-use.

Moreover, other studies have shown that the cloud reduced setup and maintenance costs for 95% of survey respondents. Another 50% saved about 50% on costs in their IT department by leveraging cloud apps and infrastructure.

Contributes to Business Continuity

Arguably the most significant benefit of using cloud computing technologies in banking is the ability to keep up with the expectations and needs of today's bankers. It's a new world, and traditional banking alone is no longer enough to remain relevant in the industry.

Banks must evolve, adapt, and innovate to stay relevant in the Digital Era. In other words, if you want your financial institute to continue doing business, you will need cloud solutions.

Access to Software Applications

Access to software applications like ERP and CRM is crucial to optimizing a bank's user experience for staff and customers. Both supply a significant advantage in the banking industry.

CRM, or Customer Relationship Management, is an excellent tool for tailoring your banking solutions to your ideal consumers and delivering customer-centric experiences and services. On the other hand, ERP streamlines all your banking processes by automating tedious tasks like data entry and others.

Green IT

As more and more consumers prioritize environmentally friendly organizations and going green — approximately 81% of people prefer to support and do business with sustainable organizations — green cloud computing offers another great advantage to banks. The concept is that by switching to the cloud, your IT departments will offer society a myriad of environmental benefits, like minimizing energy consumption and decreasing your bank's carbon footprint.

Usage-Based Payments

Not only will your bank benefit from fewer upfront costs when implementing cloud solutions into your institution, but you will also see fewer costs in the long term. This is primarily because organizations only pay for what they use.

Enhanced Data Security

Although data security is a fear that holds some banks and credit unions back from innovation, cloud computing offers better data security and protection. In fact, Accenture declares that it's "time to let go of this myth and embrace [the] cloud," as the top 30% of groups in their report saw fewer attacks and prevented, found, and fixed breaches at a higher level than others.

Greater Efficiency in Bank Operations  

First and foremost, the efficiency of bank operations is immediately enhanced by the capability to manage it from anywhere and cut the time it takes for banks to process big data. Furthermore, it simplifies processes, allowing for data to be tracked easily and transactions to be conducted faster.

More Responsive to Customer Needs

Bankers’ needs are constantly evolving, and the ability to identify and appeal to them is essential to increasing consumer experiences and satisfaction. Take, for instance, certain tools or features your consumers want or need on your digital banking platform. If your competition has it and you don't (or don't at least have plans to implement it soon), you can lose bankers in a blink of an eye.

Challenges That Come With Cloud Technology in the Banking Industry

As with any technological advancement, some challenges come with cloud technology in the banking industry. They include the following.

Data Security and Privacy

Although cloud technology can combat many data and security breaches, there will always be a certain amount of vulnerability. The challenge with data security and privacy is that it's not yet possible to be 100% safe from it all. Any technology, including cloud computing, has data security and privacy risks.

Defining ROI

Implementing the cloud into banking has many advantages to it. Still, it is recommended that you do not invest heavily in cloud solutions until you know the benefits to your institution. The key here is to discuss in full detail what you will have to put into the investment versus what you will get from your provider — then weigh the pros and cons of what that will mean for your bank.

Regulation and Compliance

For a good reason, financial institutes have much stricter regulation and compliance laws to follow. Since banks handle sensitive and important data, they are forced to protect that information at all costs. In this case, the best solution for banks is to store sensitive data in private clouds rather than other models that share cloud access.

Data and Application Control Concerns

Another big challenge and concern for banks are not having complete control over their financial institution's applications and customer data. Using a third-party vendor to provide cloud services can make transferring such a large amount of data less flexible, discouraging many from switching to cloud solutions.

Choosing the Best Cloud Service Providers for Financial Services

Your experience with cloud computing will depend solely on the provider you work with and the model you implement into your bank or credit union. To help ensure your decision is informed, here's what you need to know to ensure the right provider offers you the right cloud computing solutions.

Cloud Service Models

There are three types of cloud service models:

1. SaaS (Software as a Service) — benefits for financial institutions include massive scalability,  effective communication with consumers, fast implementation, and working well with sensitive data and compliance.
2. IaaS (Infrastructure as a Service) — major benefits for financial institutions include enhanced security and simplified compliance.
3. PaaS (Platform as a Service) — benefits for financial institutions include cost savings, rebalancing investment and resource pools, and the ability to maximize their retained payment margins.

Cloud Operating Models

The cloud operating model details how your financial institution should process and proceed with technology operations in the cloud:
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1. People — organizational structure, roles, and accountability.
2. Technology — cloud platform, technical capabilities, and multi-architecture.
3. Process — governance and policies, operational processes, SLAs, HA, and monitoring.

Cloud Deployment Models

The cloud deployment models you have to choose from are:

• Private
• Public
• Hybrid

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