The future of banking is bright. By 2030, Accenture predicts that banking will be universally accessible thanks to digital technologies and AI-enabled systems, and the customer experience will be highly personalized and financially empowering. However, meeting these expectations, while limiting risks, will require strategic planning and cloud adoption. This article covers the types of cloud computing in banking, the benefits of cloud, common challenges, and best practices.
What Is Cloud Computing in Banking?
Cloud computing in banking allows financial institutions to leverage the internet to access resources such as software, computing power, and data storage. Whereas on-premises models require businesses to purchase, manage, and configure their own infrastructure, cloud computing can reduce upfront costs and the need for in-house expertise.
Cloud technology can help financial organizations scale with more agility. Different deployment models can suit the varied performance, security, and technological requirements of different workloads:
- Public cloud: In the public cloud, third-party vendors provide services over the public internet. Common providers include Microsoft Azure and Amazon Web Services (AWS). Multiple customers share the resources, and pricing is pay-as-you-go, determined by customer use. While public cloud computing can be very secure, banks must configure and manage their environments properly to meet compliance requirements for handling sensitive financial data and other personally identifiable information (PII).
- Private cloud: Businesses that choose a private cloud environment will receive dedicated resources that are either hosted within the organization’s data center or colocation data centers offered by a provider. Private clouds offer greater control over security and compliance, making them a good fit for more sensitive workloads, which may include bank account numbers, transaction data, and more.
- Hybrid cloud: A hybrid cloud combines the private and public models. This can be a cost-effective and time-saving way for banks to move into cloud infrastructure while retaining on-premises workloads. This can be a good arrangement for allocating workloads based on sensitivity, performance, and compliance standards.
- Multicloud: Banks may also choose a multicloud strategy, which involves using more than one public cloud provider. This might be done to avoid vendor lock-in, improving the ability to negotiate contracts with public cloud providers. It can also be helpful when organizations want to take advantage of the best tools multiple cloud service providers have to offer. This can be complex to implement, but it can ensure a more optimized environment in the long term.
The Importance of the Cloud in Financial Services
Cloud computing can help financial institutions rise to meet expectations in a digital-first world. This technology can improve scalability, agility, and efficiency, positioning banks to collaborate with fintech partners, integrate seamlessly into digital ecosystems, and co-create innovative services that meet evolving customer demands.
Banks of all sizes may be interested in moving to the cloud because of a number of driving factors. First, cloud environments can provide significant cost savings, offering pay-as-you-go models that reduce capital expenditures and improve scalability. Cloud-native platforms also reduce time-to-market, getting financial apps and tools developed, tested, and deployed more quickly. Additionally, cloud can be more resilient compared with legacy frameworks, with modern security features like multi-region redundancy and continuous compliance monitoring built in to adapt to evolving threats.
Open banking is another major factor driving the shift to the cloud. This regulatory framework requires that banks securely share customer data, with consent, to third-party providers. These data exchanges are mainly enabled with API-driven infrastructure, something that legacy systems may have difficulty supporting. Cloud environments have native support for APIs and can help financial institutions easily participate in an open banking ecosystem.
What Are the Benefits of Cloud Computing for Banks and Financial Institutions?
Cloud computing for banks and financial institutions can be beneficial for modernizing operations, improving security, lowering costs, and improving the customer experience, all while allowing for greater agility and responsiveness to market demands.
Cost Efficiency
In on-premises environments, financial institutions need to invest in significant capital expenditures (CapEx), including hardware and facility costs. The cloud replaces this with an operating expense (OpEx) model, in which organizations pay for the resources they use on demand. This offers more financial flexibility, reducing upfront costs.
Public cloud platforms also offer various cloud cost models that banks can leverage to save on costs. For example, reserved instances allow companies with predictable workloads to get steep discounts when they commit to a certain usage level. These cost-saving measures can greatly lower costs and allow for allocation to more strategic projects.
Better Data Security
While on-premises environments allow for ultimate customization and control, including for security measures, cloud environments have technologies and tools that provide enhanced security, which can even surpass what individual banks can maintain and build. Cloud providers can implement measures such as encryption, real-time threat detection, and network firewalls, while financial institutions can focus on utilizing cloud tools to secure applications and data within the environment.
Cloud environments also have robust computing power that can process large volumes of data in real time, making them ideal for continuous fraud detection and risk analysis. When a TierPoint client in the financial sector needed a more secure environment, a compliant, multi-account AWS environment offered the hardened security capabilities the company required in addition to meeting scalability and long-term operational needs.
Scalability and Flexibility
Elasticity, or being able to scale up and down based on current demand, is important in the banking sector because financial institutions need to be able to handle surges while ensuring consistent uptime and performance for end users. Cloud computing is highly scalable and flexible, accommodating rapid resource increases without over-provisioning hardware. The flexibility afforded by the cloud also makes rapid deployment possible.
Improved Customer Experience
Customers expect digital banking to be a seamless process, similar to purchasing items on an e-commerce website or ordering food from a restaurant. Cloud-based platforms can better support the features that customers have come to expect, including:
- Mobile banking apps
- AI-powered chatbots
- Generative AI financial advisors, tailored to a specific customer profile
Offerings like these can elevate customer satisfaction, strengthening Net Promoter Scores (NPS) and overall retention rates.
Accelerated Innovation
To continue the positive customer experience, financial organizations need to continue to innovate and develop new features and tools that will be useful and valuable to users. Cloud adoption supports rapid innovation by leveraging artificial intelligence and machine learning without as much upfront investment as on-premises frameworks. Banks can develop, test, and tweak new products and digital services that compete with fintech brands.
What Are Common Challenges Banks Face When Migrating to Cloud Computing?
Migrating to cloud computing can bring a lot of positive changes to a bank, but making the move can also be challenging. Organizations need to think about how cloud-based solutions will integrate with legacy systems, how data will remain secure, how they can effectively manage the changes internally, and how they can maintain compliance, all while avoiding vendor lock-in.
Regulatory Compliance
Managing financial data is a sensitive process, and banks are beholden to strict regulatory frameworks, such as the Payment Card Industry Data Security Standard (PCI DSS) and the Sarbanes-Oxley Act (SOX). These standards include requirements for security controls and financial reporting transparency. Financial institutions must work with their cloud providers to ensure the environment is compliant.
Data Security Concerns
Banks handle very sensitive financial data, so data security needs to be a top concern. The average data breach in the finance industry costs over $6 million, in addition to reputational losses, legal fees, and regulatory fines.
Before, during, and after the cloud migration processes, organizations have to keep data confidential and protected. Cloud providers secure their infrastructure, but banks are still responsible for managing the security of applications and data within the cloud environment. This is known as a shared responsibility model, and it’s important to recognize your responsibilities, so security measures don’t go unaddressed.
Staying attuned to the latest cybersecurity threats in the financial services industry is also key to ensuring adequate protection. Hear more about building and managing cloud security in financial institutions from Sameer Airyil, Executive Director of Cloud and Cybersecurity at JPMorgan Chase, in episode 29 of our Cloud Currents podcast:
Vendor Lock-in
While cloud migration can open up new opportunities for integration and innovation for financial institutions, choosing just one cloud provider carries a risk of vendor lock-in. Cloud-native tools, including proprietary AI, bring massive innovation but increase dependency on provider-specific products and services. This can reduce an organization’s ability to negotiate or shop around for features and contracts that fit its business and budgetary needs.
Multicloud and hybrid cloud environments can counter this challenge, allowing for greater freedom to move workloads to different providers and optimize resource allocation for performance, cost-effectiveness, security requirements, and more.
Integration with Legacy Systems
Banks can have legacy systems that are years or even decades old, making them difficult to integrate into modern cloud environments. Simply doing a “lift and shift” may not work, and it may require a multi-phased process, complete reengineering, or entirely new tools to move everything into public and private cloud environments. Understanding how legacy systems work and what they will require to remain operational post-migration can help organizations plan for success.
Change Management
Cloud migrations also come with a great deal of organizational changes. Team members will need to learn how to adapt to new workflows and shift some of their daily practices, which will require training. For those who are hesitant to change, it’s also great to have internal cheerleaders and consistent messaging from leadership around how things will shift after cloud migration projects.
Ensuring Cloud Security and Compliance in Financial Services
Financial institutions that leverage cloud-based banking must ensure that their configurations and security controls both meet internal and external standards. This is important for data security and for regulatory compliance.
Regular Security and Compliance Audits
Security and compliance audits shouldn’t just be done once. They need to be a regular part of a financial institution’s business processes. Internal assessments help organizations find and address potential vulnerabilities, but third-party audits should also be conducted to uncover things internal teams may miss. These auditors can evaluate how effective security controls are over a certain period and pinpoint compliance gaps.
Data Encryption
Sensitive financial data must be protected at rest (when stored) and in transit (when it’s being sent between systems or devices). Most cloud providers offer encryption services, but banking clients need to understand how encryption is being applied and if there are additional tools needed to protect data in specific workloads. Banks also need to manage encryption keys so that data is not at risk, even in the event of a security breach.
Identity and Access Management (IAM)
Identity and Access Management (IAM) programs prevent unauthorized access to cloud resources, mandating that only authorized and authenticated users can access specific applications and data in the cloud. These programs can include least-privilege access, which grants the least amount of access possible to a given user for them to perform their essential business tasks. They can also include multi-factor authentication, which requires more than one form of authentication to access materials, as well as role-based access controls (RBAC), which assign access rights based on the role a team member has in the banking institution.
Threat Detection and Prevention
Threats can come in at any time, which makes threat detection a 24/7/365 task. Security information and event management (SIEM) and Endpoint Detection and Response (EDR) tools can watch for suspicious activity and prevent attacks before they become a larger problem. However, these can generate a lot of alerts, which can mean added noise for internal security teams trying to act quickly.
Managed Detection and Response (MDR) can help make sense of all of these alerts by providing a human team of security experts who can investigate these alerts, find new threats, and advise on how to respond based on priority and potential impact to the organization. Having a round-the-clock proactive defense can help smaller IT teams keep up with threats they might otherwise miss.
Compliance Optimization
Optimizing for compliance means that financial institutions are considering which workloads need to be housed in which environments, and how they need to be protected. This can impact choices in IT infrastructure, partnerships with external cloud banking services, and internal governance standards.
Hybrid infrastructure can be an attractive option for businesses looking to ensure consistent compliance across different cloud environments, because it allows for greater flexibility and security control where it is needed. In cloud environments, working with a cloud provider or financial IT services provider that has the necessary certifications, such as SOC 2 Type II and ISO 27001 can also reduce the banking institution’s compliance burden. Providers and vendors that have SOC 2 Type II reports will offer a detailed audit of organizational controls. An ISO 27001 certification demonstrates that the information security management system (ISMS) is robust and compliant.
Key Use Cases of Cloud Computing in Banking
Many of the top banking trends Accenture recognizes in banking are enabled by cloud computing. The cloud can speed up development, transform core banking systems, improve disaster recovery efforts, and deliver more meaningful insights more quickly. Plus, they can restore human connections and build customer relationships.
Data Analytics and Business Intelligence
Banks generate large amounts of data. Customer transactions, interactions, market trends, and traffic data can be hard to process with legacy systems. Cloud computing can store, analyze, and process data at scale, allowing for advanced business intelligence and data analytics. With these insights, financial organizations can better understand customer behavior and tailor their products and services to what they want the most. JPMorgan offers a great example of this, as most of its analytical data (90%) has now been transferred to the cloud.
Fraud Detection and Risk Management
Analyzing real-time data is the best way to find and stop fraudulent activity, but humans can only take in so much information. AI/ML solutions in the cloud can analyze transactions as they happen, spotting anomalies and suspicious activity before humans can even open a portal. Automated flagging can help humans triage events, addressing what’s most urgent and protecting customer accounts before an incident occurs. One of the ways Goldman Sachs has transformed in the cloud is by automating security and digital forensics processes.
Customer Relationship Management
Customers are at the core of any business, and it’s no different in financial services. It’s important to keep customers happy, offering a reliable service while continuing to evolve to meet new expectations. A customer relationship management (CRM) system empowers banks with a comprehensive view of their customer base. These solutions can include interaction history, customer preferences, key dates, and more, enabling organizations to deliver a more personalized customer experience regardless of who that customer has interacted with in the past. Modern cloud CRM tools, especially those integrated with advanced technologies like AI, offer highly sophisticated segmentation and personalization capabilities for marketing, sales, and customer experience teams.
Mobile Banking Application Development
One common customer expectation is to receive mobile banking services. Cloud computing can also help in this area by enabling rapid application development and ongoing support. Organizations can quickly scale resources to accommodate surges in users at peak times, improving the customer experience with high availability, and then scaling down when demand falls, avoiding excess costs from unused resources.
Core Banking Transformation
Core banking processes can be hard to change when they’re built on legacy systems. However, they can also be harder to maintain with each passing year. Core banking transformation can start as a gradual process where financial institutions replatform systems and move individual components over time. This can reduce costs and improve operational efficiency and agility in phases.
In fact, modern guidance emphasizes incremental modernization that prioritizes API-first design, containerization, and microservices, rather than a full “lift and shift.” This phased approach helps reduce costs while improving operational efficiency and agility step by step.
When a financial services firm partnered with TierPoint to migrate its core systems to the AWS cloud, they successfully achieved greater resiliency and performance.
Disaster Recovery and Business Continuity
Any downtime at a bank can result in significant financial losses, not to mention shaken trust from customers. Cloud services can maintain reliable uptime and offer geographically distinct backup locations, restoring financial operations quickly after a breach, natural disaster, or other form of disruption.
Banks will want to consider the length of downtime they can afford, which may only be seconds or minutes, and find a disaster recovery solution that meets this recovery time objective. Any lost data can be disastrous, so a tight recovery point objective that reduces or eliminates data loss is also necessary.
What Is the Future of Cloud in the Banking Industry?
The future of cloud in the banking and finance sector is still being shaped. The rise of AI/ML solutions, transitions to AI-ready environments, and growth in cloud-based services will continue to expand what is possible in the cloud.
Rise of AI and Machine Learning in Cloud Solutions
Cloud-based AI and machine learning (AI/ML) technologies benefit from the scalable storage and computational power available in cloud environments. This support is necessary to run sophisticated AI models. AI/ML services in financial institutions, especially those leveraging generative AI, will increasingly provide:
- Hyper-personalized experiences to meet customer needs
- Enhanced fraud detection that learns from previous behavior
- Predictive analytics to identify potential risks, such as credit defaults or market volatility
- Operational efficiencies through automation of mundane tasks like document or data processing
At the same time, bank leaders must stay informed about new compliance requirements, which are expected to increase for AI usage. Topics such as bias mitigation, explainability, and auditability are becoming central to discussions on AI regulation. The widespread push for ethics also makes responsible AI a key consideration for the future, ensuring that innovation is balanced with transparency, fairness, and compliance.
Multi-Cloud and Hybrid Cloud Strategy Adoption
As previously mentioned, banks may want to move to multicloud and hybrid cloud strategies to reduce risks associated with vendor lock-in and legacy integrations. With multicloud, organizations use one or more public clouds in their infrastructure. This can be good for failover options and for banks looking to leverage best-in-class tools from specific providers. Hybrid cloud strategies incorporate private and public environments, which can allow banks to store sensitive data and core banking systems in dedicated private environments, while less critical applications can be stored in more affordable, accessible public cloud environments.
Shift Toward Cloud-Native and Containerized Architectures
Cloud-native architectures are becoming the standard for IT leaders in banking. New technologies like Kubernetes, microservices, and serverless computing are seen as the bridge between legacy core systems and modern banking applications. Banks can leverage them to deploy services faster and scale more efficiently. This shift enables continuous innovation while minimizing disruption to critical systems.
Data Sovereignty and Localization Concerns
As banks expand cloud adoption, data sovereignty and localization are becoming pressing concerns. Regulations in many regions require that sensitive financial data remain within national or regional borders.
Cloud providers are increasingly offering localized infrastructure to help banks comply with these requirements. For financial institutions, balancing global scale with local compliance is critical to maintaining customer trust and meeting regulatory expectations.
Growth of Zero Trust and Advanced Identity Frameworks
With cybersecurity threats on the rise, banks are increasingly adopting zero trust models and advanced identity frameworks to tackle the challenges of cloud computing. Instead of relying on perimeter-based security, zero trust verifies every user and device at every interaction. Strong identity and access management (often enhanced with biometrics, multi-factor authentication, and continuous monitoring) helps safeguard sensitive financial systems. These frameworks strengthen defenses and build customer confidence in secure digital banking experiences.
Achieve Secure Cloud Transformation with TierPoint
When you’re planning a digital transformation project in the financial industry, experience matters. Experienced cloud professionals can help you increase operational efficiency and customer satisfaction, all while mitigating risks associated with security and compliance concerns.
TierPoint can help financial IT teams reduce risks associated with migration, delivering predictable outcomes while avoiding downtime. This means your customers experience business-as-usual as you transform your systems in the background. TierPoint also helps companies meet relevant regulatory standards like PCI DSS, ISO 27001, and SOC 2 to ensure compliance in every stage of your cloud transformation journey.
With our cloud-agnostic expertise, you can choose from several cloud providers without feeling fenced in. We understand that transformation requires a roadmap, not a one-off project, and we’ll partner with you to strategize, execute, and optimize your systems in the cloud.
