Banks Embrace Cloud, AI to Innovate and Tap Partnership Opportunities

Banks Embrace Cloud, AI to Innovate and Tap Partnership Opportunities

by April 29, 2024

The banking industry is shifting towards innovation, collaboration and customer-centricity, driven by the adoption of technologies including cloud computing, data analytics, artificial intelligence and machine learning (AI/ML), changing customer preferences, and a rapidly evolving regulatory landscape, a new report by Amazon Web Services (AWS) says.

The report, titled 2024 Industry Insights: Banking on the Cloud, explores the various trends and developments shaping the banking industry, focusing on the impact of cloud computing, data analytics and AI/ML on the sector and exploring how financial institutions are tapping into these technologies to deliver superior customer experiences, fight financial crime, stay compliant, and address emerging trends including environmental, social and ethical governance (ESG) practices. These trends were drawn from interviews with AWS customers in the banking industry, combined with insight from analyst firms and global consultancies.

Improving customer experiences

According to the report, seven trends are shaping the banking industry in 2024, the first one relating to improving customer interactions, personalization and service delivery to meet evolving expectations.

In today’s digital age, customers are demanding seamless and personalized experiences when interacting with their banks, the report says. Technologies such as cloud computing, AI/ML and automation allow banks to do that, enabling them to better understand customer needs, preferences, and behaviors to offer tailored services and solutions. Technology also allow them to streamline processes and provide real-time support.

A recent research on AI/ML and generative AI in banking conducted by AWS and Qorus reveals that AI/ML capabilities are increasingly essential for banks looking to gain and competitive edge over competitors, with 49% of the banking respondents polled indicating leveraging AI/ML to manage customer experience, and 82% stating that AI/ML investments to improve customer experience were their top priority over the next 12-18 months.

Ecosystem banking

The second trend outlined in the AWS report is the rise of ecosystem banking where financial institutions are increasingly extending the concept of ecosystems to capture cross-industry opportunities.

Ecosystem banking involves collaborating with various partners, including fintech companies, technology providers, and other industries, to offer a broader range of services and solutions to customers. Emerging technologies, including cloud computing, data, AI and application programming interfaces (APIs) allow banks to tap into this opportunity, allowing them to innovate rapidly, roll out new features and services in a timely manner, and achieve seamless integration across multiple cross-industry platforms.

Ecosystem banking represents a strategic shift for the industry towards collaboration, innovation, and customer-centricity, and constitutes a massive business opportunity for banks. Deloitte estimates that approximately 30% of the revenues in the financial services industry will be generated through cross-industry ecosystems by 2025. 77% of the Swiss banks surveyed by the consultancy believe ecosystems will have significant importance in the future growth of their business.

Enhancing fraud and financial crime protection

The third trend outlined in the AWS report is the need to use technology solutions to combat fraud, money laundering, and other financial crimes.

Banks are facing growing challenges in protecting customer data, preventing unauthorized transactions, and ensuring compliance with regulatory requirements, the report says. By leveraging, advanced technologies such as cloud computing, AI/ML, biometric authentication, anomaly detection algorithms, and real-time monitoring systems, banks can enhance their fraud detection capabilities, identify suspicious patterns, and mitigate risks more effectively.

Financial crime continues to evolve at a fast pace as fraudsters tap more sophisticated and advanced methods to circumvent detection. A recent study conducted by regtech company ComplyAdvantage found that 59% of financial firms expect financial crime levels to rise moving forward, with 58% of respondents planning to hire more staff to combat this increase.

Integrating ESG principles in banking

The fourth trend highlighted by AWS is the growing importance of ESG practices, reflecting a broader shift towards sustainable finance and responsible investing.

Banks are increasingly integrating ESG principles into their business models to align with global sustainability goals, mitigate risks, and enhance their reputation as responsible corporate citizens. This involves leveraging data analytics and technology solutions to buy or build solutions that use ESG data to reduce their carbon footprints, protect financial and social capital, and compliant with emerging disclosure requirements.

ESG practices are emerging on the back of growing demand from investors, increased regulatory pressure, and a desire from to mitigate risks relating to climate change, social inequality, and governance issues.

The rise of composable banking

The fifth trend relates to adopting a modular and composable approach to banking services and infrastructure.

Composable banking refers a practice where an application is built by assembling multiple smaller modules together. The modules are generally self-contained and offer a specific functionality through a pre-defined and standard set of APIs.

Composable banking allows banks to break down traditional systems into smaller, reusable components that can be easily integrated and orchestrated to create seamless end-to-end processes. This approach also allows banks to tap into partnership opportunities with fintech partners, third-party developers, and ecosystem providers to co-create value-added services and enhance the overall customer experience.

In the era of digitalization, banks are embracing the composable architecture to rapidly create and deploy new solutions tailored to meet evolving customer needs and market demands. McKinsey estimates that adding complex functionality to a legacy core could take a bank anywhere from 200 days to more than 400 days, whereas on a modern core, the bank could add the functionality in less than a month.

Modernizing finance

The sixth trend outlined by AWS involves the use of advanced technologies, data analytics and digital platforms to transform financial operations, modernize finance and improve overall efficiency and agility.

Many banks are grappling with outdated finance systems reliant on legacy spreadsheets and manual processes, leading to scalability challenges and increased operating costs. To address these issues, banks are integrating financial and non-financial data to improve decision-making, and leveraging AI/ML capabilities to enhance forecasting accuracy.

PwC partner Diego Cervantes-Knox estimates that transformation through data-driven decision-making and process automation can help organizations cut costs by 30% within the finance function. These cost reductions stem from reduced manual processes, increased data accuracy and streamlined operations.

Remaining compliant

Finally, the seventh and last trend highlights the use of technology and automation to enhance regulatory compliance, risk management, and internal audit processes.

Banks are leveraging automation and cloud computing to gain real-time visibility into their operations, enforcing least privilege principles and enhancing security measures. Cloud tools powered by ML and pattern-matching algorithms are also being employed to detect and protect sensitive data from unauthorized access or usage.

Compliance functions face ever-changing and more demanding regulator and customer expectations. According to a Thomson Reuters study, 73% of compliance officers expect an increase in regulatory activity in the next year.

 

Featured image credit: Edited from freepik