These days, you can access almost any service on the cloud. There's even a term for it: "anything as a service" or XaaS.

You might have thought, then, that the financial sector would have followed suit and moved the lion's share of its operations to the cloud. But, in fact, many banks and other financial institutions still rely on on-premise data centres.

These servers are far from ineffective – but they have their downsides. They cost a pretty penny to run and maintain and are vulnerable to hardware failure.

Combine this with the rapid shuttering of many physical branches during the pandemic and the dawn of hybrid working and you can see why the sector is beginning to accelerate its move cloud-wards.

Aside from anything else, the proliferation of online customers means that systems need bolstering and bandwidth increasing. Cloud technologies can help in both regards.

Even so, the banking sector is way behind others. At the time of writing, only around a quarter of banks run more than 30% of their applications in the cloud.

In this article, we run through the advantages of cloud banking and make some tentative predictions.

What's so good about cloud banking?

The cloud has three main advantages for banks. The first is that it cuts infrastructure costs. The second, that it makes upgrades faster and easier than ever before. And the third, that it centralises data.

On-premise data centres cost a bomb. Research by Microsoft has shown that migrating legacy applications to the cloud provides a 466% ROI. Similarly, a study by the Bank of England revealed that cloud migration can slash the cost of infrastructure by 30% to 50%.

Despite this, there are still concerns that cloud migration is expensive – but while it's certainly a big investment, it pays dividends. And for firms who want to proceed with caution, there's always the possibility of migrating workflows piecemeal.

Next, there's the question of speed. Maintaining servers in on-premise data centres is both costly and time-consuming. But with cloud processing, web applications can be upgraded quickly and frequently.

And, finally, it solves the problem of data silos. Banks naturally store huge quantities of data, much of it sensitive, and if it's stored on separate bits of legacy hardware then it's hard to access, integrate and analyse.

Cloud banking brings all of an institution's data together in a single unified platform. This has tangible benefits. For a start, it can leverage AI and machine learning to manage risk. A constant question in banking is, after all, "is this transaction legit?"

It can also improve the customer experience through increased personalisation. We live in an age of personalised services – be it show recommendations on Netflix or takeaway suggestions on Uber Eats. The more unified a bank's data, the better it can target financial products and advice to individual customers.

And cloud processing is fast, which also benefits the user. In the words of Michael Ruttledge, CIO at Citizens Financial Group, "to compete in this marketplace you have to deliver speed – and to deliver speed you need to deliver cloud-native applications".

How secure is the cloud?

The most obvious challenge is cybersecurity. Cyber attacks and data breaches are disruptive – especially when they bring down essential services like banks. They also cost companies in the form of fines. There's a concern that cloud banking will be somehow less secure than legacy hardware.

However, modern-day encryption is more resilient and adaptable than ever – and financial institutions are increasingly choosing to bolster their security posture with multi-cloud environments (17% of them, at the time of writing).

The question of accountability is hotly contested. In the event of a data breach, how much responsibility should be borne by cloud providers? This is a concern raised by a US Treasury report which cautions against letting financial institutions rely on the same few cloud providers.

The case of Deutsche Bank

Deutsche Bank is currently working with Google Cloud to "redefine" banking through cloud technology. In its own words, it's "building the foundations and the infrastructure for a compliant, secure experience" and "enabling all of [its] clients to really now leverage that to better their life".

In practice, this involves innovations like the Frontier app, Deutsche Bank's cash flow and invoice management platform. This allows customers to share invoices and collect payments in real-time. Deutsche Bank claims that it shortens the invoice cycle by 80%.

Deutsche Bank also points to the advantages of centralising data, saying it allows for deeper analytics and machine-learning solutions that benefit the customer. It also cites the three "esses" often associated with cloud technologies – speed, security and scalability.

What does the future hold for cloud banking?

Without wishing to try to read the tea leaves, it's highly likely that cloud banking will increasingly become the norm. After all, bank spending on cloud services has been predicted to increase by 16% annually. To put this in perspective, there's only predicted to be a 4.5% annual increase in overall IT budgets.

Business research firm Gartner says that 30% of banks with over $1 billion in assets will launch banking as a service by the end of 2024.

What's more, business magazine Forbes has forecast "nearly 100% chance of cloud" for the banking industry in 2023. Financial institutions like Wells Fargo, Morgan Stanley, Bank of America and Goldman Sachs all have their eyes on the skies – and are collaborating with tech giants like Google, Microsoft and Amazon Web Services to handle the migration process.

Another development is likely to be an increase in hybrid cloud architecture. IBM's Prakash Pattni has noted that this will enhance AI capabilities and "provide real-time tracking for things like energy usage and carbon emissions."

Whatever happens, banking is heading towards the cloud – and we'll be on hand to tell you the latest.

At Ascend Cloud Solutions, we're well-versed in helping companies migrate to the cloud. Interested? Please don't hesitate to get in touch.