Why Banks Have Been Particularly Slow to Adopt Cloud-Based Technology 

The banking industry is changing quickly as it adopts new technologies and platforms, but it has been slow to adopt one particular technology: cloud computing. The cloud decentralizes computing processes and makes them available from anywhere with access to the Internet.  

Through cloud technology, banks could make their systems faster and more responsive to the individual needs of their customers. Some consumer banks are already implementing cloud-based tools for certain processes, such as supporting mobile banking or detecting fraud. Formerly, banks could track fraud using only the bandwidth of their servers. With the cloud, detection efforts can be much stronger. 

The Benefits and Potential Drawbacks of Cloud Computing for Banks 

Beyond these applications of cloud computing, lenders have used the technology to process loan applications and analyze underwriting decisions on deals ranging from mortgages to large corporate loans. Banks have also relied on machine learning and cloud computing to identify money laundering practices. Moreover, traders have configured the cloud to give them extra computing power for analyzing the market or handling times when client activity sharply increases. While these are great examples of how cloud computing can be used to streamline banking and finance processes, the fact remains that the banking industry has still been slow to adopt it. 

Today, the majority of large banks continue to run their own data centers with in-house computer servers that process an incredible amount of customer account data, including payment records. Keeping these machines running requires a lot of electricity, not to mention special air-conditioned rooms meant to keep the servers cool. All of this means that the in-house data centers end up costing banks a lot of money. Despite the cost, many in the industry perceive the approach as safer, thinking that adopting the cloud will make them more vulnerable to cyberattacks.  

The other obstacle to adoption is the tight government regulation of banks, which can make such transitions difficult. Furthermore, many banks have outdated systems that would make the transition quite tricky. 

The Future of Cloud Technology and the Banking Industry 

While these hurdles are significant, they are not impossible to overcome. Moving forward, more banks may begin taking the leap. Once a few organizations show that it is possible, others may quickly follow. The shift would need to be enacted with the highest level of security and explicit protection for personal data and transaction information. This means that the initial transitions would be slow and overly cautious. However, once there is more of a blueprint for how to transition successfully, it will eventually go much more smoothly.  

North American banks use the cloud to handle just about 12 percent of tasks. Industry experts predict that this number will likely double in the coming two years. The executives at leading banks have already made statements about the importance of adopting new technologies like the cloud, as well as artificial intelligence and machine learning. Wells Fargo has a plan to transition to data centers run by Google and Microsoft over the next few years, and Morgan Stanley already has a deal with Microsoft. Meanwhile, Goldman recently announced a partnership with Amazon Web Services, and Bank of America has invested in creating its own cloud. 

Technology Companies Respond to Banking Industry Hesitance 

Many companies that sell cloud-computing services have recognized the banking industry’s hesitance to adopt this technology. While the advantages are clear, banks need the guarantee that the transition is secure. As a result, several tech giants have begun to hire former bankers, who have unique insight into the needs of banking institutions. With this insight, tech companies become better prepared to pitch to banks and address their specific concerns. This may explain why so many of the leading banks have recently entered into agreements with tech giants to transition to cloud services for their customers. 

The other factor to consider is the pace at which cloud providers are developing structures for security, compliance, and control. As these structures become more advanced, banks are feeling more comfortable with adoption. Nowadays, the structures put in place by cloud providers are often more advanced than those at the bank, which means banking institutions can rely on cloud services to help them grow and introduce new services for customers.  

Unfortunately, however, glitches occur, and banks are skittish because of them. For example, shortly after Goldman teamed with Amazon, an outage halted a conference being held by the bank for top finance executives. These kinds of glitches can impact consumer confidence, but they are also less likely to happen over time as the services become more polished. 

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