Asian Banks Are Embracing Cloud Computing Faster Than You Think

As research for my upcoming report on cloud adoption among banks in Asia Pacific (AP), I’ve spent the past several months interviewing senior IT and business decision makers at banks and other financial institutions across the region. I’ve also met with banking regulators and spoken with cloud providers with a strong AP presence. Look for the full report early in the new year. In the meantime, I wanted to share some key findings.

  • Cloud adoption is among the top priorities for most banks in the region. In fact, contrary to popular belief, I’d categorize cloud adoption as nearly mainstream among banks in many parts of Asia Pacific. But adoption drivers vary based on the cloud approach. Private cloud initiatives, for instance, centered on data center transformation to drive improved operational efficiency and cost savings. Public cloud initiatives typically focus on expanding mobile banking capabilities and other customer-facing systems of engagement — the key to customer retention and overall growth.
  • Banking regulators heavily influence cloud strategies, but don’t forbid them. No regulators in Asia Pacific specifically prohibit banks from using cloud per se, although their views toward cloud computing vary and have certainly affected banks’ approaches. Instead, regulators are seeking to minimize risks, particularly around possible exposure of customer data. Not surprisingly, banks have among the highest levels of governance requirements around data privacy, data residency, and data movement across boundaries. But regulators understand the competitive pressures banks are under and are seeking ways to avoid hindering customer engagement strategies by distinguishing between “core” and “non-core” systems, with regulations varying based on the workload and type of data. The Bangko Sentral ng Pilipinas (BSP) in the Philippines, for instance, published its IT regulations framework in August 2013. While it requires that customer data be stored in a private cloud, the definition includes virtual private clouds located outside the country. Other data, such as marketing materials and other nonessential information, can be stored in public clouds.
  • Cloud drivers typically mirror market maturity and demand drivers. In India, for example, there’s a major push among smaller banks — encouraged by the government — to leverage community cloud-based core banking systems to cost-effectively expand coverage in underserved, primarily rural areas. Similar initiatives are underway across many parts of ASEAN, with banks seeking to leverage a combination of public and private cloud approaches to ramp up banking capabilities amidst minimal existing IT infrastructure. In mature markets like Australia, Hong Kong, and Singapore, banks are far more focused on leveraging a combination of hybrid cloud approaches to drive data center transformation while simultaneously driving improved customer engagement.

In the age of the customer, easy access to alternatives means customers’ barriers to exit have come down. This trend is particularly pronounced in banking, where the shift from physical (branches, ATMs), to virtual (online banking, mobile access), is nothing new. Incremental improvements in existing IT infrastructure and operations are necessary but nowhere near sufficient. In 2014, banks will steer more of their IT spending towards systems of engagement, which will further accelerate cloud adoption across the region.

Comments

I am pleasantly surprised at

I am pleasantly surprised at your finding. My personal experience in the region has been that Financial Institutions have been reluctant to experiment with anything that touches operations.
There is a large degree of ambiguity around what MAS/HKMA guidelines and the default position is not to be the first one to try anything on the cloud. Banks have been apprehensive about even placing non-financial data (like leveraging a SaaS offering for service management) on the Cloud. In that context I am curious to know the kind of adoption that you have seen happening in this space.

reluctance to experiment

Hi Amalesh,
Thanks for your comments, much appreciated. This was my own assumption going into this research as well. Ambiguity around regulations is certainly a major ongoing issue. Regarding MAS specifically, there's also an unmistakable sense of resistance to cloud in general, at least that's the perception of most banking execs I speak with. But the reality is quite different, particularly in Australia and some emerging markets I mention (Philippines, India). I'm even seeing multiple examples of cloud-based core banking being leveraged and/or at least considered in several instances in AP. Full report (subscription required) will be out later this month. But 1 or 2 more blog posts with some of the key findings will also follow.