Banks are moving into the cloud as part of their digitalization efforts, more purposefully and faster than ever. They are finally transforming out from long-held monolithic models systematically and shedding apprehensions around regulatory compliance, security, skills availability, and welcoming the transformation and advantages brought by the cloud.

In doing so, banks can use the latest cloud-native technologies, in conjunction with their domain skills that they have built over many years, to make headway in meeting the stiff challenge posed by the new-age fintech companies born in the cloud. They will have access to flexible and scalable IT infrastructure built on agile principles that allow them to meet evolving needs of modern-day banking operations and customers by quickly turning around innovative, personalized offerings. The hassles of being overloaded during peak seasons will be a thing of the past as the cloud’s dynamic elastic scalability and rapid capacity provisioning help banks navigate through peak transaction loads without impacting the quality or seamlessness of the customer experience. At the same time, operational costs of infrastructure are bound to go down with regards to its management and upkeep.

Having decided to go with the cloud, the next question banks face is: which deployment model to choose? What works better: single cloud or ploy cloud; public or private? In a recent study of cloud adoption, we found that 41% of the respondent banks were on a private cloud while 28% used a public cloud. Both models have their share of advantages and limitations. The public cloud model trumps in situations where scale, flexibility, on-demand computing, and elastic scaling are paramount. Latency, governance, data residency, and other areas of compliance can cause problems here. On the other hand, the private cloud model is the better option when security, control, compliance, and customization override other requirements. However, they might face compatibility issues with certain legacy applications and capacity expansion.

These are among the reasons why banks are now more amenable to a mix of the two models. More institutions are now prepared to move core functionalities into the cloud. Even the large and mid-sized financial institutions that earlier chose to only go with private cloud, are now open to using public cloud to house their smaller, non-core applications. The previously mentioned study also revealed that 31% of the respondents were using a hybrid approach – a winning combination of on-premise, private, and public cloud models that promises scalability, efficiency, and technology capabilities that stand the test of time.

In the case of the hybrid cloud model, banks can choose to retain legacy systems, which are not cloud-ready, on their premises. In parallel, their technology decision-makers can work out the ideal mix of applications that can be distributed across private and public clouds depending on the use-case scenarios most relevant to their needs.

While they are making these decisions, it’s also important to evaluate the additional benefits of a multi-cloud arrangement – banking institutions get to mitigate the risk of vendor lock-in, and toggle between cloud service providers to meet business and market requirements seamlessly. They can select the most suitable cloud service provider for each workload and have more room for negotiating terms as they have many empanelled vendors. It will also prepare them for the future as regulations are expected to come into force, making it necessary for banks to use multiple cloud vendors. A 2021 Google Cloud Report reflects this shift in mindset as it found 88% of respondents looking to adopt a multi-cloud strategy.

The significance of hybrid, multi-cloud in digital transformation

As banks take this major step towards modernization and future-readiness, it appears to be the most viable option at present. Even with this approach, however, banks are bound to encounter complexities that can impact interoperability and seamlessness within the cloud environment. There are inherent challenges such as application tier and data tier being distributed different cloud environments. Other factors such as heterogeneity of models and lack of standardized data replication tools between cloud service providers will also lead to compromised outcomes.

Therefore, we at Infosys Finacle recommend that banks go with cloud-native, cloud-agnostic solutions that can easily slide into a multi-cloud setup. This allows them to find the best-suited vendor and data configurations that enable seamless operations. In addition, they can opt for containerized deployments to ensure automated application development that contributes to overall efficiency.

Undisputedly, banks stand to gain plenty from migrating to the cloud with a hybrid, multi-cloud approach. However, rather than going all out on their cloud investment, banks should tread this path of change wisely with careful planning to optimize the many advantages it enables. They can then aspire for greater benefits beyond cost efficiencies, business resilience, advanced analytics, and being able to deploy, automate, and innovate faster. Thus armed, banks can focus better on offering optimal customer experiences while navigating through transaction loads on a massive scale.

This piece first appeared in VentureBeat in Dec 2022