Canadian banks rapidly shifting to cloud amid COVID-19, fintech competition

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Canada’s big banks are going through an exodus.

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Faced with increased competition from startups, higher expectations from consumers and rising digital demands of COVID-19, experts say banks are accelerating a significant shift of operations from outdated computer systems to the cloud.

The move began before the pandemic, but the sudden closure of branches and offices in March 2020 forced banks to rely even more on online systems and prompted an acceleration, according to Accenture, for Canada in Financial Services. said managing director Robert Woakes.

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“What happened in March of last year, suddenly people realized, ‘Oh my god, I have to go too fast.’ That was the big wake-up call.”

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Cloud-based systems, sometimes run privately by banks and usually by third-party tech giants, allow data to move faster and more freely, and allow banks to pay more for each customer. Allows the potential for customization, greater automation, as well as potential cost savings. ,

Such promises have been around since the dot-com bubble, Vox said, but the hardware has only been working in recent years.

“We didn’t have really scalable technologies, and now those technologies have caught on.”

Several banks have made major cloud commitments in recent months, including CIBC’s deal with Microsoft’s Azure, Scotiabank’s deal with Google Cloud, and BMO’s partnership with Amazon Web Services, as they are all “cloud-based.” first” strategies.

BMO recently completed its first major systems makeover since the Amazon partnership by moving its entire transportation finance operations to the cloud, which included moving data across nearly a thousand servers.

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The bank took this step because it was ultimately convinced that the cloud infrastructure was established and reliable enough, said Sid Deloch, chief information and operations officer for North American Commercial Banking at BMO.

“We had to reach that threshold of expectation, and we think it exists and we’re pretty confident that it exists now, and so we’re moving forward.”

He added that this change creates the ability for BMOs to make automated loan decisions in many cases, as well as save over 30 per cent on operating costs.

Sanjay Pathak, Head of Technology Strategy and Digital Transformation at PwC said, “As well as waiting for confidence in new systems, banks are also held back by a patchwork of legacy systems built over decades.

“Reconciling existing operations with some outdated technology is very complex and can be very risky and disruptive to business.”

He said getting the authorities in the right mindset has been a challenge, as it means giving up control of the infrastructure built over decades.

Pathak said, but banks can no longer delay as they are feeling the consumer pressure as well as expecting more smooth processes from the employees.

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Smaller banks without widespread legacy systems are able to move faster, such as EQ Bank moving their entire systems to the cloud in 2019, while new startups force financial companies to start on the cloud and respond to banks There is benefit to doing.

“There is such a huge pressure being put on financial services from fintech, and fintechs are often born on the cloud. They move so fast, they do fully digital capabilities,” said Hilary Hunter, chief technology officer at IBM Cloud. are.”

She said banks are moving more core systems to the cloud because so many data sources need to be integrated and readily available to be able to do things like make instant loan decisions.

“(Consumers are) all very impatient and we expect things to be available immediately.”

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However, the increasing reliance on third parties to host most of a bank’s functions, including personal financial data, is raising concerns of regulators.

The Bank of England said in October that “additional policy measures are needed to mitigate financial stability risks arising from concentration in the provision of certain third-party services.”

Canada’s banking regulator issued draft guidelines on technical and cyber risks earlier this month, saying banks should plan an exit strategy from third-party cloud providers, and ensure they don’t share data. You can switch from one cloud provider to another. It plans to release more specific third-party guidelines early next year.

But now that the main concern is about data security and ensuring that big tech companies don’t have too much power in setting their terms of service, competition could also emerge as a threat, Pathak said, as the big Tech companies have both the scale and the speed to become a threat.

“There’s a growing tension, I think, as cloud providers are becoming too competitive … that’s a real threat to banks.”

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