Why GCC Banks are looking to the Cloud
Serge Tohme, Managing Director, MENA & Turkey, Finastra makes it clear that the tipping point for migration to the cloud for organisations has now been reached.
Banking is big business in the GCC: at the start of 2019 there were about 70 listed banks in the region, according to Bloomberg, serving a population of around 51 million people.
By comparison, there’s around a dozen listed banks in the UK, serving roughly 65 million people. As well as competing with each other, regional banks are also facing the same challenges as their global counterparts, as digitization and ever-evolving customer needs are transforming the sector. According to a recent survey by EY, 78% of GCC banking customers would switch bank for a better digital experience, and almost two thirds would be comfortable switching to a digital-first bank.
Faced with this need to innovate and keep up with new market entrants, unsurprisingly, banks in the region are increasingly making the strategic decision to adopt a cloud strategy. Cloud is all about enabling business agility and rapid evolution with on-demand innovation to satisfy growing business needs - yet with no compromise on security and without the investment burden associated with legacy systems.
Security concerns have always acted as one of the biggest barriers to cloud adoption identified by banks in the past. However, with huge investments made into cyber-security by providers such as Microsoft, the cloud can be as safe as - if not safer than - on-premise legacy systems. In fact, 15% of respondents in the survey stated that increased cloud compliance to security and regulatory standards was a major driver behind them adopting the cloud.
Another major hurdle for banks in this part of the world has been regulatory issues, such as data transfer restrictions that prevent data being sent beyond countries’ borders. While this has inevitably hampered public cloud adoption, the likes of Microsoft and Amazon have invested heavily in establishing their own data centers in GCC countries – helping to boost the cloud market. IDC is predicting an annual growth rate of 24% for the Middle East & Africa cloud market, which will reach $5 billion by 2022.
So, we can clearly expect to see more banks embracing a cloud model, and enjoying the benefits cloud brings. For instance, consider product testing – it places a heavy burden on computing resources, can take unpredictable amounts of time, substantially increases the peak capacity a bank needs to hold in-house, while also driving down utilization rates.
With cloud-based testing services, creative, innovative IT departments can take risks with designing and even launching new products in the knowledge that the computing capacity can be dialed up as required – but also decommissioned if no longer needed. By being able to bring products to market quicker and eliminating some of the risks and costs of failure, cloud-based banks can adopt an entirely different attitude towards innovation.
Cloud also makes sense in an era when banks are looking to reduce their IT overheads significantly, says Matt Frank, Lead Cloud Consultant, Cloud Transformation at KPMG: “The reality is that the cloud can help to solve many of the issues around cost because it is remotely managed, maintained and upgraded. The cloud model enables banks to focus on their core competencies and not spend time and human resource on managing data centers.”
Finally, new market paradigms based on a platform and open banking model are best served with a cloud-based environment. The cloud reduces implementation effort and smooths friction points because it can host the required tools: API gateways, identity and access management as a service, and cyber security as a service.
In this sense cloud serves to align with the desire to have agile innovation, be fast to market and ultimately attract and retain customers.
The cloud industry has matured in a very short space of time and providers have built close relationships with banking software players, enabling them to come to market with a joint proposition. Regional banks have the opportunity and a clear way forward to act decisively on their strategies to innovate - and keep up customers’ digital needs.