There are three key cloud trends that we see having the biggest impact on India’s BFSI sector in the year ahead.
Revaluation of operational control processes
One of the big challenges of cloud adoption, pre-COVID-19, was the amount of operational overhead and risk acceptance knowledge required to migrate workloads from on-premise to the cloud. This was coupled with the fact that many banks had in place arduous control processes that were difficult to overcome. However, due to the pandemic, banks have realized that many offshore staff who were maintaining systems could not log in from home, causing a risk issue. Banks were forced to re-evaluate these processes to ensure they were fit for purpose in this new world, where physical distancing quickly became the norm. We expect that in 2021 banks will increase expenditure on process simplification and improvements – something that the cloud can help deliver.
Changing relationship between data regulation and innovation
With changing geopolitical dynamics, we will see increased focus around data sovereignty and consumer safety around the globe, as consumers seek to understand how precisely their data is being used and governed. Some countries may follow the likes of Poland, setting up national clouds where banks shift from capital expenditure (CAPEX) to operational expenditure (OPEX) and enjoy many of the benefits of the cloud, as data remains in the country. Meanwhile, the big public cloud providers will continue to canvas and work with regulators to find common ground on the best way to run their infrastructure long term.
In the past, some regulators have stood in the way of innovation, in part due to a lack of understanding of the competitive landscape. Banks could end up spending more on maintaining the status quo to placate regulators. In India, there are ways that the cloud can resolve regulatory compliance. In 2020, National Payments Corporation of India (NPCI) rolled out more than twenty circulars for UPI, requiring bank compliance – shifting to the cloud should help keep up with these regulatory mandates.
While it will be a gradual shift over the next five years, I would hope banks can reduce overheads, which restricts their ability to innovate, by working closely with cloud providers and regulators to automate and simplify through increased transparency.
Long live the marketplace platform
One of the greatest drivers of cloud within India’s BFSI sector will be the need for banks to diversify their revenue models from fee-based transactions (where it is a race to zero) to new client-based services. India’s banks face eroding revenue as Merchant Discount Rate (MDR), Merchant Service Fee (MSF), and other charges such as interchange are highly regulated – highlighting the need to diversify. For example, with Google Pay or WhatsApp Pay, banks acquire new customers on channels outside of their own at a much lower cost to what they would have incurred the traditional way. Once they have these new customers, it opens up new cross-sell and up-sell opportunities for the bank; they could sell a loan product or a credit card. In fact, Indian banks are partnering with fintechs to provide instant credit, so it does open up new avenues of income for the banks, and it is instrumental to their overall payment strategy.
Beyond these three trends, we also anticipate continued demand for hybrid and multi-cloud environments, where banks avoid being locked into a single vendor by using a mixture of private and public cloud offerings. More bank leaders and CIOs will also recognize the need to get machine-human collaboration right. Greater investment in employee reskilling and upskilling will helps banks unlock the value that lies at the intersection of employees and technology. There will be a more top to bottom approach to “applied intelligence” – combining intelligent cloud technologies and solutions with human ingenuity – across all areas of banking, reshaping core banking processes and transforming customer experiences.
Find out more in our on-demand webinar: Driving Payments Modernization with the Public Cloud