Cloud Computing comes with numerous challenges in banking, such as investing in securities, assurance of reliability, and legislation.
FREMONT, CA: Compared with other industries, the banking industry has been relatively slow to adopt cloud computing. It stems from fear about potential cybersecurity vulnerabilities and the compliance of cloud service providers (CSPs) with the complex regulatory framework that governs the industry. Bank profitability is particularly threatened by the ongoing Covid-19 pandemic. Fee incomes will decline as retail spending declines. By not offering free payment holidays and cutting late fees, banks also risk losing their reputation.
The following are GlobalData's top banking challenges in cloud computing:
Risks associated with cybersecurity: Financial services are particularly important when it comes to safeguarding data. Cybercriminals often target the industry, and the recent spike in covid-19-related phishing attacks is compounding the problem. Networks and customer or proprietary data must be protected from theft, corruption, or breach by banks.
Pure digital competition: New players provide core banking services without requiring human interaction, pioneer new services such as robo-advice, and perform traditional functions for a fraction of the cost. Through open banking, these third parties can compete more directly with traditional financial institutions, which lead to innovation. Financial data from banks and other financial institutions are made available to third-party financial service providers.
Legislation: Regulators worldwide are becoming bolder and more interventionist, introducing initiatives such as the General Data Protection Regulation (GDPR), open banking, Anti-Money Laundering (AML), Know-Your-Customer (KYC), and enhanced customer authentication. A growing regulatory burden increases the risk of non-compliance. Technology change is mirrored by the rapid evolution of regulation, which ranges from the liability model of sharing data to the sustainability principles written into guidelines. By refusing to sign up for initiatives such as the UN principles for responsible banking, banks risk damaging their reputations.
Data abounds: Data generated by financial services firms is often siloed and underutilized. With better use of enterprise data, product design, promotions, underwriting margin risk management, and resource allocation can be improved. With legacy infrastructure and siloed data, incumbent banks are at a disadvantage compared to smaller firms with better infrastructure.
A sustainable future: Carbon footprint reduction is becoming increasingly important for financial firms. A major concern has been raised over the governance structures of banks, which may lead to financial mismanagement.
Profitability is declining: The low-interest rate environment and falling fee income have impacted banks' profitability. After the 2008 banking crisis, low-interest rates have been a permanent feature of financial markets, reducing banks' margins. Furthermore, new entrants have driven down fees for financial services or eliminated them entirely for certain products. In order to drive bottom-line growth, banks are looking for alternative ways to generate income or reduce costs.
