What Is Cloud Banking And How It’s Changing Finance

What Is The Meaning Of Cloud Banking?

Cloud banking meaning. Conceptually, cloud-based banking is a type of on-demand delivery of services for financial institutions that allows them to host banking services using cloud computing and cloud infrastructure (servers). In simple terms, this is the migration of banking operations to the infrastructure of cloud providers. This approach gives firms the opportunity to save resources and time, since companies providing financial services can manage banking platforms and applications via the Internet, expanding their capabilities.

To better understand the popularity of cloud banking technology, it's also worth looking at why the cloud in banking is important and valuable for institutions & customers and why more and more companies are going down the path of cloud adoption. 

In addition to digital transformation efforts, innovations in the form of AI and ML automation, improved protection of sensitive data and increased operational efficiency, cloud computing technology significantly simplifies life for clients. Since all tasks are performed in cloud hosting environments, any operations in the banking industry become possible to accomplish as quickly as possible and with the help of a smartphone and a cloud banking app. This makes the customer experience more pleasant and smooth, while financial institutions gain the advantage of reduced costs for maintaining their own infrastructure, as well as operational efficiency. It's a win-win for everyone.

How Cloud Banking Works

At the center of cloud-based banking is complex cloud infrastructure from giants like Azure, Google, and Microsoft, which allows financial institutions to access the functionality of these systems for a fee.

The process itself looks quite simple. A user receives cloud storage in the required amount and pays upon use. This approach allows skipping the purchase and management of their own IT infrastructure for data storage, while offering better flexibility, scalability and protection of financial data. Among the advantages is that a cloud environment allows firms to host and store a large amount of data.

Speaking about how cloud banking works, one should consider the most common models of cloud solutions:

• Business Process-as-a-Service or BPaaS. Ideal for human resources or billing, this option of cloud platforms is best suited for day-to-day operations.

• Infrastructure-as-a-Service or IaaS. This represents core banking platform infrastructure, which is an excellent solution for managing business operations and software integrations.

• Software-as-a-Service or SaaS. This type of model provides cloud-based banking software for customer relationship management, invoicing, accounting and so on.

• Platform-as-a-Service or PaaS. Such models are core banking systems that allow developing databases and applications for digital banking services.

In addition to cloud banking models, it's also worth looking at the types of cloud hosting environments, which come in 3 varieties: private cloud, public cloud and hybrid.

• Private Cloud

The private model implies a cloud computing environment that is owned by a single organization, for example a bank or any other financial institution. In this case, cloud-based services are delivered on a private network, and also have an additional security layer since private clouds are usually hosted in the owner's data center.

The advantages of private cloud infrastructure are easy control and data security. Among the disadvantages, one can note insufficient scalability and flexibility.

• Public Cloud

A public cloud is a hosting environment in a public domain, which can be accessed via the Internet. The most popular hosts are Microsoft Azure, Amazon Web Services and IBM. The public model is perfectly suited for financial institutions focused on scaling, developing and deployment of their products and services directly in the cloud. The disadvantages of public clouds include a more complex process of maintaining data confidentiality, since the environment is divided between multiple users.

• Hybrid Cloud

Hybrid cloud solutions represent complex cloud infrastructure that combines cloud computing of both private and public environments. This approach makes hybrid systems extremely in demand due to the expanded range of possible combinations of private and public clouds. In other words, such environments are more flexible since they allow modifying the systems taking into account specific needs, tasks, and workload. Therefore, many cloud banking firms often turn to this model.

On-Premises Vs. Cloud-Based Banking Platforms

Let's take a look at two popular models, namely on-premises and cloud-based banking platforms across the following aspects: cost-efficiency, scalability, and management & control to better understand their features.

Cost-Efficiency

• On-premise software. Fintech companies and other financial institutions don't pay service fees, but must invest heavily in purchasing and maintaining expensive cloud computing infrastructure.

• Cloud banking solutions. This option allows avoiding serious investments in maintenance and upgrades, offering instead a fee for the service.

Scalability

• On-premise software. Is difficult to scale quickly due to the fact that local hosting directly depends on the bank's resources.

• Cloud banking solutions. Is a more flexible option, enabling banks and financial institutions to scale faster to meet demand without the need for additional investments.

Management & Control

• On-premise software. Financial institutions have full control over their infrastructure, however they must also ensure the functioning of hardware and software independently.

• Cloud banking solutions. The cloud services provider is responsible for maintenance of server infrastructure in this case, thus cloud technology can help financial institutions avoid many technical concerns and reduce costs.

All-in-all, cloud platforms are more flexible and offer greater cost-efficiencies, especially in the long term, because there’s no need for regular investments in updating and maintaining infrastructure.

Cloud Banking Benefits

Cloud-based solutions can offer firms in the banking sector a number of valuable advantages, enhancing operational efficiency, boosting digital transformation initiatives, and reducing costs. Benefits you can enjoy with cloud transformation include:

Scalability And Flexibility

Perhaps among the most competitive advantages worth noting are the flexibility and scalability of cloud banking platforms. Due to the features and capabilities of cloud platforms, companies providing financial services can easily modify these environments, integrate with other platforms and implement new tools. The elasticity of cloud infrastructure is perfectly suited for scaling, while not requiring significant investment in hardware. This provides better adaptability to market and customer requirements.

Faster Innovation Cycles

Another advantage is that many cloud banking capabilities are off-the-shelf, which significantly shortens the time required for development, implementation and delivery of innovations and new financial services to customers. With deployed cloud infrastructure, banks and institutions can timely notice customer needs and respond by providing a solution capable of improving their experience. In addition, thanks to optimization and automation of core banking functions with cloud solutions, banks and institutions significantly increase their competitiveness due to faster cycles.

Cost-Efficiency

Financial institutions can reduce costs on data storage and analysis thanks to the pay-as-you-go pricing model, as well as data transfer to the cloud. This allows them to eliminate upfront investments in hardware, software, and maintenance which leads to a lower total cost of ownership (TCO). In addition, cloud providers can offer flexible payment options, thus institutions can adjust their budget and business plan taking into account the needs and specific functions they use. With cloud computing, banks and financial companies achieve cost optimization through shared infrastructure and resources.

Enhanced Security And Compliance

Since financial services are often targets of hacking and fraud, protecting sensitive customer data is critical. Migration to the cloud allows making the financial services industry more secure through added layers of protection, such as encryption and early fraud detection. In addition, many cloud environments offer built-in DR (disaster recovery) capabilities, allowing companies to quickly recover in case of security breaches or massive outages. Finally, cloud banking solutions are an easier and more convenient way for institutions to stay in regulatory compliance due to built-in frameworks, automated monitoring, and regular security updates. However, security and data protection in cloud banking require careful selection of a provider. Since financial institutions rely on third-party platforms, it is crucial to ensure that your cloud service provider guarantees security and offers a transparent privacy policy, along with robust security measures.

Real-Time Data Access And Analytics

When it comes to accessibility to banking services for both customers and employees, cloud-based banking solutions are extremely useful. Cloud technology provides access to customer data and core banking functions in real-time from anywhere, as well as from different devices whether they are desktops, laptops, tablets, or smartphones. Thanks to enhanced accessibility, financial institutions can gain advantages from improved operational efficiency and a more pleasant customer experience. In addition to this, cloud-native development for banking includes built-in data management systems, so firms can enjoy automated reporting and advanced data analytics.

Experience Improved Scalability, Security, And Cost-Efficiency With Custom Cloud-Based Digital Banking Solutions. Migrate To The Cloud Safely With Jappware! 

Challenges And Risks

Implementing cloud banking, financial institutions must also consider the challenges that require attention to ensure a safe and smooth transition to providing cloud-based banking services. Key challenges and concerns that need to be addressed include:

Security And Data Privacy Concerns

Security and privacy aspects are of great importance when we talk about cloud banking services. Since cloud providers are third parties, banks and fintech companies essentially entrust sensitive customer data to other organizations, therefore it's crucial to guarantee data sovereignty, confidentiality, and regulatory compliance, as well as to study cloud providers' data privacy policies and practices in advance to understand how they protect sensitive data and to avoid the risks of selling user data. 

Regulatory And Compliance Complexities

Banking cloud solutions are prone to regulatory compliance challenges. It's extremely important that financial institutions cooperate with reliable providers that comply with industry-specific regulations and standards, especially GDPR, PCI DSS, and SOC 2. Additionally, it's essential to maintain visibility and control over their data, infrastructure, and applications to demonstrate compliance to regulators and auditors. Sometimes, firms may face a problem when their cloud provider may conflict with established financial regulations in their region, which means that companies will have to negotiate each standard with the solution provider or change the cloud.

Migration From Legacy Systems

Database transfer to the cloud is a complex process that usually can take several months. Among the main reasons why instant migration is impossible are compatibility issues, integration complexities, and legacy systems. Moreover, in case of obsolete systems you will also have to find qualified cloud computing experts which can take some time. 

When migrating to the cloud, it's critical for banks and institutions to ensure seamless interoperability between cloud-based and on-premise systems. This will help avoid disrupting operations and make the migration process smoother.

What Is An Example Of A Cloud Bank?

Cloud-based systems are popular and in demand among both fintech startups and banking industry giants, who have successfully integrated cloud technologies into their banking infrastructure. For example, excellent cases include:

• JPMorgan Chase. This leader in the financial sector uses the cloud to boost digital transformation. In addition to this, JPMorgan has partnerships with big cloud environment providers (Amazon Web Services, Google Cloud, and Microsoft Azure). This approach allowed them to increase development and deployment speed, as well as migrate almost 40% of processes to the cloud.

• HSBC. Increased flexibility, scalability, and cost optimization were among the main reasons why HSBC decided to use cloud for banking operations, which also allowed them to automate almost the entire volume of transactions.

• Capital One. Another successful example is Capital One. They use the cloud to leverage scalable resources, streamline processes, boost digital transformation, and improve the quality of customer service, which leads to better operational efficiency.

How To Migrate From On-Premise To Cloud-Banking System

The transition from on-premise to cloud infrastructure consists of several sequential steps, namely:

• Determining needs and requirements. The first thing to start with is to clearly define the main goals, as well as assess the current infrastructure and determine the core data that will need to be migrated to the cloud. This will allow you to choose the best cloud service provider option considering efficient performance.

• Cloud migration strategy. The next step is choosing a cloud provider and creating a migration strategy that would match your institution requirements and service expectations.

• Financial data migration. When the provider is chosen, the process of transferring data to a cloud infrastructure begins. It's important to have a clear and detailed plan in case of unforeseen circumstances.

• Cloud infrastructure setup. Data security and regulatory compliance are extremely important aspects, so you need to ensure your cloud-computing provider offers the appropriate security certificates. Then comes the stage of customizing the environment for the needs and tasks of your bank/institution.

• Testing and integration. After testing the data migration plan to guarantee that the service will work properly, you can start integrating all components into the cloud infrastructure.

• Optimization. Once everything is launched, it's worth carefully monitoring processes and performance to make necessary adjustments and optimize functions.

Why Choose Jappware?

Implementing cloud-based digital banking solutions and migrating to a cloud infrastructure is a complex process that requires taking into account a huge number of aspects to ensure a successful and secure launch.

At Jappware, we provide services for developing cloud-based banking software, considering your specific business goals and needs. Our team consists of experienced professionals who know how to solve tasks and find innovative solutions for better efficiency and cost reduction.

By collaborating with us, you can gain advantage from our expertise and development. We are focused on long-term partnership, therefore everything from planning to launch and software support—Jappware will go the entire way with you, helping to scale and adapt your services to market and customer requirements.

Contact us and start your cloud migration project today!