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Extensive research suggests that the GCC neobanking market will be worth $3.45bn by 2026. High internet usage, advanced fintech policies and frameworks, and a rapid shift towards cloud banking solutions are powering this growth.
The latter are transforming how fintechs and challenger banks innovate and serve their customers. Moreover, because of their infinite cost and operational benefits, cloud banking is rapidly becoming the only viable way for banks to survive.
Underpinning the importance of this new banking infrastructure is its structural ability to solve complex problems, making it faster, cheaper, and more accessible for banks to innovate new products and services. It becomes easier to roll out, test, and scale new services in quick succession. But what exactly is ‘cloud banking,’ and how does it work?
Key differences
Cloud banking refers to the delivery of banking services through cloud computing technology – remote rather than on-site. This means that banks use remote servers, rather than local servers or physical infrastructure, to store and process their data and applications. There are three key differences.
First, traditional banks store and process their data using physical infrastructure – which requires real-world on-site maintenance and constant physical upgrading. In contrast, cloud banking utilises third-party providers to store and process data in distant servers, allowing banks to save on hardware, software, maintenance, and upgrades because they can outsource their IT infrastructure to cloud providers.
Cloud banking is also more scalable than traditional banking. This is because cloud providers can quickly and easily add more computing resources to accommodate increases in demand: limitless, instant access to ever-greater computing power. Traditional banks, on the other hand, may require significant investments in physical infrastructure to expand their operations.
Cloud banking providers also use advanced encryption and multi-factor authentication to protect their customers’ data. And while it is true that traditional banks also have security measures, these can be time-consuming and costly to implement.
Staying competitive
This latter point – cost savings – makes cloud banking particularly important. Cloud banking allows banks to save on hardware, software, and maintenance and to take advantage of pay-as-you-go pricing models.
This provides significant flexibility (upgrading or downgrading in flex to market demands), making it possible for banks to rapidly adjust their balance sheets, respond to global events and deliver the right customer experience at the right time.
Cloud banking also enables banks to launch new products and services quickly and easily, such as mobile apps and digital wallets. The process of innovation and product development is accelerated. This agility is critical in a highly competitive market, where banks need to stay ahead of the curve to maintain their market position.
It means that banks can improve the customer experience by offering seamless, personalised, and convenient customer services through multiple channels, such as mobile, web, and social media. This can improve customer satisfaction and loyalty, increasing revenues and market share.
Security concerns
Cloud providers also use advanced security measures to protect their customers’ data, such as encryption and multi-factor authentication – which can be constantly updated to meet emerging threats without needing to purchase additional physical infrastructure. This can help UAE and Middle Eastern banks comply with local and international regulations, such as the General Data Protection Regulation (or GDPR) and the PCI Security Standards Council (or PCI DSS).
Despite these enormous benefits, there remain challenges. Security is one – because even though cloud banking solutions offer considerable benefits, banks need to trust that cloud providers can protect their sensitive data from cyber threats. To mitigate these concerns, banks must perform a comprehensive risk assessment, develop a strong security strategy, and establish robust data encryption and access control protocols.
The issue of data protection also introduces new challenges related to regulatory requirements specific to the outsourcing of data management. Banks are held to exceptionally high standards of regulatory alignments – such as know-your-customer and anti-money laundering regulations. These can vary across different countries and regions.
Banks must ensure that their cloud service providers comply with these regulations domestically and across borders, which they can do by partnering with cloud service providers with a deep understanding of regulatory compliance.
The customer experience
With robust security in place, banks can utilise data processing to develop highly personalised services and solutions that are relevant to the individual customer in real time. With robust analytics comes the ability to gain unparalleled insights into customer habits, behaviours, strengths, and weaknesses.
Customers who struggle to save can be provided with bespoke advice and product support to help them maximise their income and save for the future. New families can receive financing support as their children grow and as their parents grow older – because with third-party machine learning algorithms, the innovation potential expands exponentially.
While cloud banking is still a developing concept, it holds the potential to revolutionise the financial services industry. As technology evolves, financial institutions must explore innovative solutions that enhance customer experiences and drive operational efficiency. Cloud banking represents a potential pathway for achieving these goals, although each institution’s journey will be unique and dependent on its specific needs and considerations.
Cloud banking offers exciting possibilities, however, financial institutions must evaluate its benefits and challenges in alignment with their individual requirements and regulatory obligations. The concept of cloud banking invites exploration and discussion as the financial services landscape continues to evolve.
