7 Ways Financial Institutions can Overcome Cloud Adoption Challenges in their Lending Operations

The lending industry is known for being slow in adopting new technologies while continuing to rely on disparate technologies with outdated user interfaces for laboriously completing tasks. Research shows that 30-40% of lending resources’ time gets used up on non-core tasks due to legacy systems.

But updating systems and adopting modern methods can be time intensive. Most lending banks lack the resources to support complex technology transformation, even when it is the cloud which usually doesn’t require banks to rip and replace. New functionalities in the cloud can be simply switched on while operational expenses go down because banks may not need to invest in their own server, networks, and other infrastructure. And this is just the start. Eventually a cloud-based lending solution will support a modern loan process.

So why, then, has the lending industry been hesitant to make the move to the cloud? We have identified some of the key challenges and how banks and financial institutions can overcome them:

1. Business vs IT Needs

A cloud deployment can be successful only when it is an element of corporate strategy, and not just IT objectives or budget plans. Misalignment between IT and business objectives can lead to unnecessary cloud investments and poor results. Without a complete gap analysis that prioritizes the essential features needed for better loan portfolios, banks are unlikely to see benefits of moving to the cloud. Moreover, a cloud vendor must be able to offer the most helpful functionalities and also accommodate changes to software requirements as the business evolves. Interestingly, misalignment of a bank’s technology and business objectives is both a hurdle and an opportunity, and banks that can find the synergy between IT and the business can create a differentiated and powerful cloud-based lending solution. Moreover, it is critical that a cloud migration/adoption strategy aligns well with major business initiative plans to ensure there is minimal to nil disruption during peak business cycles.

2. Cloud-based vs On-premise

Cloud-based lending solutions are a great option for banks looking to improve the management of functions and resources available to meet business demands. They help lower both capital and operational costs, and banks can launch less expensive solutions as compared to on-premise solutions. A cloud vendor offers regular maintenance, frequent software upgrades and new product releases, and proper customer service support. Now when it comes to an on-premise lending solution, banks have the distinct advantage of control and a proprietary firewall. If the bank has a dedicated IT department to manage cybersecurity and ensure a 24x7 uptime, it prefers on-premise solutions. Moreover, with on-premise the bank has access to databases that are complementary to the lending software they choose. The result? The choice between cloud and on-premise becomes that much harder.

3. Data Security, Regulations, Compliance, and End-User Accessibility

As a bank, your business partners and jurisdictions require you to comply with extremely strict standards. Data protection laws often dictate exactly what your options are regarding storing and managing your information. By placing all this in the cloud, executives are concerned that key pieces could be missed, resulting in hefty fines and negative publicity.

In such a scenario, protecting user data takes paramount importance. Considering the increasing number of cyber-attacks, data theft, and account hacking, banks are wary of moving to the cloud lest they compromise data security. The interesting thing is that cloud service providers invest much more in their security than any single bank’s IT department could. Microsoft, for instance, spends USD 1 billion every year to secure their Azure cloud platform and stave off ~7 trillion cyber threats every day! Amazon and Google also make large cybersecurity investments to ensure the security of enterprise and user data.

So, it seems that overcoming this concern for banks seems more like a cultural shift than increasing security. Perhaps one way to alleviate their security concerns is to start small by moving a part of the workload to the cloud and wait for the results. As a bank gets more confident, they can transition more to the cloud.

Also, with multiple vendors offering lending solutions on SaaS and PaaS typically based on multitenant setups, banks and financial institutions need to be certain about how the database layer on these platforms has been orchestrated. To keep costs low, vendors usually do not opt for a segregated database structure, which can become a data security risk for the bank. Hence understanding the database models on a cloud platform is critical to evaluate the risks of data security.

4. Fear of Downtime

Even banks eager to jump on the cloud bandwagon lack the expertise to implement cloud solutions and are struggling with moving their monolithic legacy systems to the cloud. In their hurry to migrate their lending solutions to the cloud, banks could face hours or days of downtime or degraded service affecting business and customers, which is unacceptable. One of the hotly debated topics while evaluating cloud vendors has been the DR or contingency aspects. Gone are the days where cloud platforms recorded zero downtime. It is critical that DR and Continuity of Business is well evaluated before jumping to a cloud platform that offers a lucrative package.

Engaging an experienced cloud vendor that can provide the essential tech support and implementation without compromising on data security or service delivery is the best way to alleviate these concerns. Some banks are even considering having multi-cloud platform for resiliency however this does pose challenges, especially towards having a low latency business experience.

5. Vendor Lock-in

Vendor lock-in is a serious deterrent for lending banks adopting the cloud. Given the steadily decreasing costs of cloud services globally (according to Jeff Bezos, the cost of cloud computing goes down by 50% every 18 months), the last thing a bank wants is to be tied to an expensive vendor. In such a scenario, a multi-cloud solution with high cloud portability and interoperability can help ensure cloud success. 

6. Gaps in Cloud Computing Skills

Another critical challenge to cloud adoption is a skills gap. How can a company move to the cloud if it doesn’t have the right people to make it happen? IT teams typically prefer the comfort of the status quo, achieved with a perceived balance between cost/complexity and business value. They are wary of moving to the cloud, because of the complexity, investment, planning, and specialized talent required. The bank’s IT team faces the challenge of bridging the gap between domain expertise vs modern technical expertise. One way to enhance internal cloud skills is to set up a cloud center of excellence and innovation labs, which supports new initiatives and creates a cultural shift.

7. Existing IT investments and legacy sprawl

Having already invested significantly in a data center, banks are reluctant to move to the cloud. At the same time, it's exactly the cost of existing data centers that has pushed banks to invest in the cloud. Though moving data to the cloud demands more than a simple “lift and shift” of data, banks can realize huge cost benefits. However, IT teams need to be mindful of aligning the cloud migration/adoption strategy with the existing hardware cycles to ensure there is no overlapping hardware cost.

Final thoughts - Overcoming Cloud Concerns

While cloud adoption is gradually increasing, banks are worried about losing control over their data, and are not confident about the support they will be able to provide to the business and their customers. This fear has been keeping lending banks from being completely comfortable with the cloud.

Core features of cloud lending solutions include increased cybersecurity, access control, data storage and protection, and the ability to scale up or down. The best way to alleviate cloud adoption concerns is to work with an experienced cloud service vendor who specializes in cloud solutions for banks and financial institutions. Such vendors usually have experts on hand who are experienced in cloud security and compliance to ensure data is always protected. They also offer custom solutions to maintain control, technology flexibility, and round-the-clock support and monitoring to ensure your infrastructure is always performing optimally.

At the same time, it is imperative that banks initiate the cultural shift within, towards adopting cloud-based solutions without reservations.