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Why Regional Banks Should Head for the Cloud

Nov 17, 2022

A global pandemic and uncertain economic headwinds haven’t slowed the march of technology – if anything, it’s been accelerated.

Cloud adoption is expected to reach $461 billion worldwide by the end of 2025. And while adoption among financial institutions has traditionally been slower – trailing the global average by 10 percent -- the pace is projected to double (from 26% to 56%) over the next three years.

Large retail and commercial banks have ambitious roadmaps to increase the share of their applications and data that are hosted in the cloud. More than two-thirds want at least 30 percent of their applications and data to be cloud-based by 2025, and almost half would like their cloud deployments to be almost exclusively customer-facing over the same period.

For regional banks, however, moving to the cloud has been more challenging. Historically, smaller banks and credit unions have lacked the scale necessary to provide advanced services like their national counterparts, such as best-in-class mobile apps and integrated back-office digital operations. Now combined with additional constraints such as less profitable business loans, a smaller overall deposit base, and long-term low interest rates putting pressure on efficiency ratios. These challenges have left many regional players with aging IT systems – all while demand for digital banking services continues to rise.

Cloud Technology Opens New Opportunities

It's clear that regional banks need new ways to serve their customers, often requiring fresh ideas and approaches.

Fortunately, digital transformation via the cloud is now within reach. By connecting to a reliable cloud infrastructure, regional banks can better meet their customers’ needs, while bringing more scale, agility, reliability and IT maturity to their businesses.

Scale for Rent

Among regional and superregional banks, cloud adoption is most prevalent among players that lack substantial scale – generally less than $500 million in annual tech-related operating expenses. These institutions see the cloud as something they can “rent” instead of own.

This “rent vs. own” model isn’t just about cost, however. There are productivity and flexibility gains too, as banks look to incorporate cloud platforms that are consistent across various environments, helping limit potential risks from services that lock in architecture and potentially hamper growth.

Innovation with Agility and Speed

Customers today demand more digital, real-time and intelligent services from their banks. Success therefore relies on the ability to innovate services with agility, achieve scale with speed, and lower operating costs.

This shift gives regional bankers a significant advantage, as they can bring revenue-generating products and services to market faster. And as cloud adoption grows, the IT department will spend less time managing legacy infrastructure, potentially reducing capital expenditures. Funds instead can go toward investing in new services and other transformational initiatives.

Enabling Artificial Intelligence (AI)

AI is critical for regional banks to become more data driven and customer-centric – and AI is dependent on a cloud-based infrastructure.

Moving to the cloud gives regional banks the power they need to up their data game. With the ability to collect and analyze vast quantities of data, AI can create a deep understanding of customers, and deliver highly personalized services at scale.

Elevating CIO Role and Impact

Cloud infrastructures are inherently resilient, highly automated, and responsive. This alone brings a new level of “maturity” to the organization – but it also provides regional bank CIOs the opportunity to fundamentally reinvent the technology environment. Once hamstrung by the limits of technology budgets, CIOs can now be elevated by technology and move the business forward.

Heightened Security

Managing reputational risk, as well as meeting legal and regulatory compliance requirements, are essential for any size financial institution.  The pre-certified solutions, automated control processes, security releases, encryption, and proactive threat detection delivered by cloud providers help ensure the levels of cybersecurity needed to keep data safe.

Cloud Adoption is Central to Regional Bank Transformation

Regional banks have little choice but to modernize and transform. By gaining a greater understanding of the full potential of cloud technologies to support innovation, bank leaders can drive change faster and deliver new services to customers without investing in on-prem or proprietary infrastructures. And if senior leadership is supportive, innovation will likely spread to other teams throughout the organization.

Regional players should first consider a “ready-made” cloud infrastructure solution. For example, Kinetic Business helps banks and credit unions achieve scale with cloud applications to support their core communications and networks. Through Kinetic’s Cloud Connect service, institutions can quickly realize more secure data transmissions via a simple network architecture.

Regardless of their specific path, regional banks and credit unions must head for the cloud. They need to consider the entire organization – from customer experience and operations, to the back office – when thinking about how to become more data driven and technology forward.

All of this comes back to the cloud – it’s not just about adoption, it’s about survival. And banks stand still at their own peril.

Contact Kinetic Business to schedule a no-coat consultation about cloud services