The Journey to Cloud-First Banking

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Join us for an engaging session where American Banker will present the findings of new research on how banking industry leaders are leveraging cloud and other technologies to modernize their data center and tech stack. 

What you'll learn

Benefits: Uncover the cost savings, scalability, agility, and security advantages of cloud adoption in banking.
  • Challenges: Understand the complexities surrounding data security, compliance, integration, performance, and cultural shifts.
  • Best Practices: Learn proven strategies for developing a comprehensive cloud adoption strategy, implementing robust security measures, adopting a hybrid cloud approach, investing in training and talent, and optimizing cloud infrastructure for long-term success.
Don't miss this opportunity to gain valuable knowledge about driving cloud adoption and enhancing strategic business priorities in the banking sector.

Transcription:

Kerry Gross (00:10):
Good Morning everyone. Thin crowd. Everyone have a good night last night. Well, I'm Kerry Gross, Director of Research Intelligence for American Banker, and I'm so excited to share some great research with you today. And joining me on this stage are Greg and Kristin, and I'll let you say a little bit about yourselves.

Greg Kanevski (00:27):
Good Morning everyone. It's great to see everyone here. And for those that watched the third period in that melee last night, it was a heck of a game. Greg Kanevski ServiceNow. I've been with a company about four years. Before that I was in banking, financial services for 30 roughly in technology, operations, security, and risk.

Kristin Streett (00:46):
Hello everyone, I'm Kristin Street. It's a pleasure to be here. It's coming from banking. It's a lifelong goal to be able to present at American Bankers, so I'm really pleased to be here. The work that I did in banking was primarily in line of business transformation, but I also worked on cross line of business transformation and also worked in some fintechs as well. So it's a pleasure to be able to speak with you today about this topic and I'm looking forward to it. Kerry, thank you. Yeah,

Kerry Gross (01:14):
Welcome everyone. And our piece of research today is about cloud first banking and I'll talk a little bit about the research we did and then Kristin, Greg and I will have a great conversation if people are interested in this data. Please feel free to take pictures of the slides we have up here. Also on the last slide, there'll be a QR code for a report that's being published today, all on this information. So plenty of resources for this great data we have, but I'll just jump in with a little bit of an introduction to the research. We talked to 181 bank leaders about their cloud banking strategy. You see on the right hand side of this slide, great distribution across all the bank types. So folks who are banks in the audience, I bet you see maybe where your bank sits and know this data is applicable to you.

(01:59):
And we have some splits on a bank size too, which will be helpful. And we qualified people into this research here on the left hand side about deep knowledge of cloud strategies. Everyone is involved in their cloud strategies on the right hand side, they're all 80% are director level or higher. And for folks who are interested in cloud, we see we asked our IT leaders about their distribution of IT workloads on the cloud. So left-hand side of this slide is in total we see in the green today 53% of IT infrastructure and application workload is in the cloud. And that chart just shows you the distribution. Very few folks are at 0% also very few folks are at a hundred percent in the cloud. Most folks are mixing between some on-prem and some cloud solutions. But as we look towards the future in 12 months, we see folks are expecting 66% of their cloud IT workflow to be in the cloud.

(02:57):
And you see that that 0% is moving up and in 12 months from now, most banks are expecting at least something to be in the cloud. And so this whole conversation I think will be really applicable to everyone in the audience as it seems like everyone is moving into the cloud. And then on the right hand side, we have a little bit of a split based on bank size where we see the largest banks are on the left hand side of this chart. A little bit trailing there in terms of what's the percentage that's in the cloud right now and going to be in the next 12 months. But Greg, I'd love your thoughts on this transition. Maybe what's happening at big banks versus small banks and just does this fit with what you see in the market? Yeah,

Greg Kanevski (03:36):
We get the benefit of traveling every week and seeing institutions of all size and being able to talk to 'em. And as we talked about in our prep session, not surprising the scale of the money center banks is massive. Even though they had a headstart, they started earlier, the transition period for them is just going to take longer just given the ramp period. And considering the number of apps they have, it's just going to take them forever. Where some of the regionals were fast followers, but if I said this to one of the regional CIOs out there, they'd probably laugh at me, but the complexity is a little bit less. I mean I guess it is peer-to-peer peer, but I'm not surprised, especially below the top 50. They had a little bit of a later start, but they were able to play catch up much faster. So not surprised,

Kerry Gross (04:23):
Not surprising at all. And I'm sure folks in the audience see themselves somewhere on this slide. And so let's jump into understanding where this move to cloud is coming from. We really wanted to understand from banks what's the primary objective that's driving cloud investments here? And we see on this slide there's really a top five items. There's about half of banks are saying that's why they're moving into the cloud. And the number one thing is a productivity and efficiency gains followed by better operational resiliency, reduced operating costs, increased agility, speed to market, and improved data security and cybersecurity. And Kristin and Greg, I'd love your thoughts on these five top initiatives and where you see that in the market as well. Go ahead.

Greg Kanevski (05:09):
You want me to go so I'm not surprised, right? Obviously this is the primary reason why we're doing why most institutions have done this. Why before I came over to ServiceNow, excuse me. We were also in that path, but the cloud-based, the value proposition is undeniable. That said, it's not necessarily the reason or hesitation from before was all about will the regulators allow us to go to the cloud? Is there security? Those issues are still present but just aren't prohibitive anymore from folks doing this and moving to the cloud. And obviously everybody's doing it, they're doing it for some sort of public private in most cases trying to balance it out, but it's undeniable. So I'm not surprised by the first five, the top five that are up there. Kristin.

Kristin Streett (05:59):
Yeah, I think that from a line of business perspective, certainly these top five are important because you're a stakeholder in your financial institution. But from a line of business perspective, I really feel that the offering and the focus is really around customer experience and optimizing that whatever division or channel that you're in and those offerings tend to already be cloud native. So they have the benefit of already seeking out solutions that live in the cloud that are easy to implement. So it's sort of a perfect match for it's objective of managing cost, but also the scalability of not having to worry about getting to the cloud because it already is cloud native. Certainly with FinTech partnerships that you'll see most point solutions, even if you're looking at a point solution or a platform tend to be cloud first. So those objectives are already sort of suited to business for that reason. So I wasn't really surprised to see that the objectives for moving to cloud, in my opinion from line of business perspective is really more about nimbleness and flexibility and being able to modify quickly your service offering so that you can meet the market need which is changing and dynamic and there's so much pressure on line of business today on where they're going to find new sources of revenue. So looking for creative partnerships, those tend to be cloud first

Kerry Gross (07:30):
And that's the change we're seeing on the last slide with the moving into cloud where cloud first, it's not an option usually it used to be, I would say 10 years ago when we were doing research, it was like, well, you could choose to be cloud, but we have plenty of on-prem situations where now it's like you have to work hard to do the on-prem versus cloud as kind of the basic expectation for all the goals you're talking about trying to get efficiency roll things up faster, which leads us to, we wanted to understand these are the goals that folks are doing, why people are moving into the cloud. Maybe this mirrors what you all are doing at your institutions. We also want 'em to understand whether people have been able to achieve their objectives so far. And so this was again a multi-select question. Folks could say areas where they're already delivering measurable value from their cloud investments. And we're talking about the comparisons between the goals on the last slide and the value here. But first let's just have a conversation around why do we think productivity efficiency gains is the place where people are most often seeing gains? Is that the expectation? And any other thoughts you have about areas that folks are seeing measurable value?

Greg Kanevski (08:42):
Like the last slide? I think the top five is not going to shock anybody in the audience. They're the top five reasons for doing this, for moving forward. What I would say is though, if you look at any company's quarterly results, IT expenses continue to rise as a percentage of expenses. When I started in the business, it was 10 to 12%. Some of the money center banks had 24% last quarter or last year. Most are in the 18 to 22% range, but that's still a lot. That's a lot. And the IT expense continues to grow and most of 'em talk about trying to get over the top of that so they can pull some investment back. But unfortunately the percentage of it, they're just trying to cap the hurdle rate at this point so that it doesn't get above a quarter. But the industry is struggling with capping those expenses because everything is in cloud today.

(09:36):
The transition periods are longer than they expected. The value proposition to Kristin's point is a little bit of a longer hockey stick, no pun intended from last night, but it's a little bit of a hockey stick compared to what they expected. But unfortunately the industry is going to have to tackle with this. We expected going into this year from what we heard from most institutions, just given the hesitation towards what was going to happen with the economy, we were forecasting a five to 7% IT cut from what we heard from most CIOs, it's turned into roughly 3% or so because the economy's turned out a little bit better. But even at that, the percentage against expenses for the institution continues to grow and that margin keeps widening.

Kristin Streett (10:24):
I was just looking at the very first line and certainly line of business would be a hundred percent aligned with seeing value there and being able to realize efficiency gains or productivity gains from moving to the cloud are obviously going to have a very strong impact on the bottom line in terms of bringing revenue in more quickly, identifying new revenue streams and that impacts different business lines bottom line. So that certainly isn't surprising, but when we're thinking about where is it already demonstrated value and the emphasis on already, I'm sort of can't help but be drawn to the not top five. And looking at, for instance, enhanced customer experiences, 36% increased agility and speed to market 30% and new revenue streams 23%. So I think there's a ways to go for that partnership for the business to really begin to see the true value of moving to the cloud. Those are certainly at least from the data suggesting that it's not already yet proving out. And so we have some work to do there is what I'm observing.

Kerry Gross (11:34):
Definitely. And I think that's a great segue into a slide we have next here, which is the combination of those last two pieces of data here. I'll give some folks some orientation to this scatterplot the bottom, the horizontal things to the furthest to the right are the things that were the biggest objectives for cloud investments. So you'll see furthest to the right is that productivity efficiency gains followed by better operational resiliency and reduced operating costs. Those of you remember were the top three objectives for moving to the cloud, furst to the right. And then we added the measurable value is the vertical access here, the things that are furthest to the top are the things where folks are seeing the most deliverable value, and that's where we see productivity efficiency gains is the furthest to the top. You recall from the last slide, it was top there too.

(12:21):
And we see that kind of in this white section, which to us is a match. We see about 50% said they wanted to have this as a business objective and about the same said they're delivering measurable value on that, which that's not, not necessarily the same bank said that, but we see feel in the market that's about matched expectations. But I see some things on this slide and I'd love to talk to you both about this down in the red, particularly increased agility, speed to market. As Kristin was mentioning on that last slide, we see almost 50% said that was a primary business objective for moving into the cloud, but only about 30% say that they're already delivering measurable value. And I'd love your thoughts on why are we seeing this gap in the ability to deliver at this point that increased agility, speed to market. I think you both have theories about why that might've happened.

Kristin Streett (13:14):
It's really interesting to sort of see it plotted out. So when you see it like this, you start to, Greg's probably identifying the things he's talking to and I'm seeing the things that I'm sort of talking to and you realize that this is really going to be where the diversion starts to happen in terms of where the priority is. And I think that's really a difference in perspective and the priorities that those different teams are really focused on internally. They do come together in many, many ways, but I think when we show some further slides, you'll see it. I don't know what you think, Greg.

Greg Kanevski (13:49):
Yeah, to me it's always great for the visual versus the statistical slide, but to me this is a mishmash of everybody regardless of their perspective in one slide, in one area. So it's good to see it plotted out. But what I would say is it's obvious. We talked about a little bit earlier, money center banks had a little bit of a headstart. So people, institutions of different size are at different phases of execution. So it's not surprising that some of the things are clustered. But in addition to that, there are benefits. I mean there's operational resilience benefits, they're just cost reduction benefits, but the line doesn't stop moving. So when you kick off this initiative, that doesn't mean that the initiative, when you're done, the environment's going to look the same. It changes every day. The expectations change, regulator expectations change. So as Kristin was alluding to in the future, we talk about separating them, you're going to see I think a much bigger difference.

(14:47):
But here it's obvious that those are the main areas, the main reasons for doing it. So it's not a surprise, but if you were to take this out by let's say the medium-sized banks versus the large-sized banks, I think even here you would see the plot being very different because with the larger institutions, it's a very different landscape than the regional banks and the interstate banks. But as we get into further, it's all going to be about managing cyber threats. The CMDB, we met with a couple of banks over the last two weeks where one bank at a dozen RAs in one exam, and it was all around operational resilience, CMDB, identity and access management, how they're managing against those, even though they're off to the cloud and they've been off to the cloud, the line doesn't stop. The line keeps inching forward and they're struggling to realize the benefits as they move through it. And the regulators at this point, given a little bit of what happened last year, first half of last year, where it was a supervisory issue, not a regulatory issue, a regulation issue. They're handing out to the ones we've visited in the past month, they're handing 'em out in the handfuls, meaning MRIs, MRIs, and that line doesn't stop. So I'm really not surprised by what you see here. I think as we split 'em out, I really look forward to Kristin's comments about line of business versus it. I think that'll be most interesting.

Kerry Gross (16:16):
And before we get there, we've had some backup as we're preparing for this conversation, we've had some conversations around how rationalization may be the thing that's impacting this kind of increase speed to market. What do you think from an organizational perspective, this is everyone in total will look at it versus line of business in just a second, but from a big organizational perspective, who it seems to me that there's kind of identifying maybe a gap for this increased speed agility to market. I don't know if you have any thoughts around that that you want to share.

Kristin Streett (16:50):
Well, I think that there's also, when you think about the list of projects that it is focused on, many of them are sort of encumbered by core banking transformation, which is a massive, massive initiative. So resources tend to be a little constrained during those times and diverted to really, really significant projects. Sometimes that means you may not get the bright new shiny object for your little thing you need for your customer experience, but it's for the greater good of the organization. But I think that what plays into here is projects that are already on the plate, what has to be migrated to cloud for regulatory reasons or for other compelling business reasons. And so there tends to be a prioritized list of projects and programs that are already in flight. And so some of those business objectives or new revenue streams here enhance customer experience. Those are of course paramount and important. It's just there are other things that are really critical, mission critical

Kerry Gross (17:52):
And that matches some other data that we collected in this survey that's not here, that 44% of it folks says their number one focus is just moving stuff to the cloud versus maybe getting some of the operational efficiency gains. But I think that's a great way to think about where do we see the split happening between some line of business areas and the three areas here, improved decision making better, operational resiliency and increased agility. Speed to market are three places where we saw significant differences between IT folks and line of business folks and their responses to their both priority and in particular delivering measurable value to each of these things. So you see furthest left on this slide, biggest difference here. IT folks think that improved decision making, 50% say that's been delivered versus look at line of business down, fewer than 20% say that improved decision making has been delivered through their cloud investments. And we see similar differences, not quite as dramatic for both. Better operational resiliency and increased agility speed to market. And Kristin, you come from a line of business place, Greg, you come from an IT place. Does this split surprise you and what are you seeing in these differences?

Kristin Streett (19:05):
I think I sort of look for the outliers. So I'm sort of looking at the better operational resiliency and IT needing to manage to that. And as a business line executive, that's super important. Customer systems cannot go down. So I think that's great, but I think that the business sort of inherently trust it to manage that. So you wouldn't necessarily see them scoring in that way. But as far as increased agility and speed to market, I've sort of spoken to this before, but that being sort of a critical piece for the business, being able to look for new products that can bring in new revenue streams for the organization are certainly going to be, it's going to be a priority and the promise of going to cloud and having a faster ability to get something to market and not waiting 12 to 18 months for something to get sort of coded into an on-prem environment and then pushed out to a cloud-based environment is definitely going to be a consideration. So I hate saying we're not surprised, but I just sort of look at it as these are just really different perspectives on the way that you look at the business. And maybe what would be interesting in future conversations and even for this audience is sort of where do they start coming back together again? Next research. Next research, yeah. Greg, how about for you?

Greg Kanevski (20:36):
Yeah, completely agree with everything you said. I remember sitting in those investment committee meetings and we'd be voting on initiative A versus initiative B, and the line of business folks would say, alright, we're going to do this, but when we're done, we're good, right? This is going to work. Yeah, of course it's going to work. But we were sitting with recently with a CIO who said, we're moving to the cloud, we're on target, it's great, but I have 3000 apps. I got to deal with the 3000 apps out there. So it still takes me a while to make the changes. I want to, we have better operational resilience, we have better nimbleness than we had before, but it's not quite as nimble as the business wants it to be. They want, and I remember one of retail bank when I was at Citizens would say, why does everything start at a million dollars and take 12 months every project?

(21:32):
And that was the inside joke to it. They would vote for moving to the cloud because we want something, we want to be able to execute right away. We want to be able to make the changes to our workflow. We want to offer a new product. And if getting us to the cloud does that, that's great. Well, now people are moving to public and private cloud or they're good pace to making it to the public private cloud, but they still have 3000 apps, 5,000 apps, 10,000 apps, and those apps take development. They take care in the feeding and to make a change to it, especially if you're going to take that app, even if it's ServiceNow or pick company A or B, it's only as good as what you put into it. So if you're not updating it, if you're not staying close, or you take that code and you pervert it into something that it wasn't intended to be and it becomes a whole new application, basically updating, it becomes a challenge.

(22:23):
Multiply that times 3000 regardless of whether you've moved to the cloud. And this is one of the reasons why, going all the way back to the earlier slides, I think the IT expense has continued to rise. And most of the CIOs that we're talking to are saying, I need to rationalize the number of apps. I need to find a way to pull that back so I can have platforms and within the platforms I can have my workflows, I can do what I need to do, but I don't have to worry about updating 3000 apps, whatever, 5,000. And I think that's a big piece here of why there's still that disparity. Because as we talked about, the line keeps moving, it doesn't stop. So expectations move, business expectations, nimbleness, unforeseen circumstances. And it is saying, we are more nimble than we were before, but we realize you want more nimbleness, we got to get there, which it takes more investment

Kristin Streett (23:17):
And resources really. I think given your comments, Greg, it's really the divergence really happens to be where you're focused. And I think it's undeniable that if there's a regulatory action that's been asked of your organization that takes precedence no matter what you're working on. So those resource alignments are really challenged sometimes given different things that are coming at the financial institution, depending if you're a credit union or a bank. And it certainly does. The wave keeps coming. And I always felt constrained by wanting something sort of net new and interesting, and that would solve all my problems vis-a-vis something that already existed in house and the list of 3000 apps that I maybe didn't know about that was still being brought to market or brought to bear for us. But yeah, I think that that divergence really is, excuse me, where they're focused. And certainly if there's something that's going to put pressure on that, the resource that's needed to implement a business facing application that's going to benefit the customer, it is going to go down on the list, especially if there's a regulatory action in front of it.

Greg Kanevski (24:30):
Never waste a good crisis to get funding.

Kerry Gross (24:34):
And I think there's some human elements behind all that too, the process management and the change management. And we're kind of, as we saw in that first slide, to me, the transition. I feel like we've just crested the wave and we're on the down slope of it. But I think that that moves us into finally talking about what challenges folks are facing when it comes to leveraging cloud computing. Again, a multi-select question here, folks could say what challenges they're experiencing. I would say 97% of financial institutions are facing some challenge moving to the cloud. And the most common we see are around security, data privacy and protection, lack of staff with needed skill sets and concerns about compliance with industry standards or regulations. Kristin and Greg, I'd love your thoughts on what you see as these top three challenges and what you're hearing from clients.

Kristin Streett (25:25):
I was just going to say nothing really derails trust more quickly in a relationship business than a breach or if customer data is exposed or my information is not kept safe. And I would say that that's everyone's concern regardless of area of the bank that you work in. So the fact that there's still concerns about data privacy and security will never be done, and to continue provide those assurances to folks, but the education needs to take place around how much more safe is it and how much more secure is it when we're operating in this way in the environment, and what's the impact to the customer, right? No one wants to sit in front of their business customer and explain why all of their data was held hostage or sold down into the dark web, et cetera, or found in some compromising scenario. So I think that the alignment on the first one here is paramount, and probably is, in my opinion, the most important of all of them

Greg Kanevski (26:31):
From an external perspective. The cybersecurity threats, which used to be the highest, most prolific logos out there isn't the case anymore. American banker published, I think it was 18 months ago or so, an article about how banks below the top 50 have to worry now where they're not the cyber dark web folks. They don't have to worry about the same governance model that we do. They don't have to worry about the, so they were out there trying to get at anything they possibly can. So the cyber investment ratio for banks below the top 25, top 50 is increasing because it's a more prolific issue for them. But from an internal perspective on data protection, data loss, I mentioned the other bank that had a dozen Mrs. A lot of it was identity and access management. How are you managing toxic combinations? How are you managing your break glass IDs?

(27:33):
How are you managing access to your U as your user designed applications that surround some of your most important apps? And how are you managing third party? And now fourth party regulators are saying this might be your third party company, but what are they doing with their third party company? And how are you enforcing if you have PII going back and forth, how are you making sure? So the internal requirements around cybersecurity, data loss, protection of just the people that you trust, your internal associates, your most trusted vendors and providers, is becoming more and more of an issue, not just the cybersecurity of protecting your firewall and your assets from penetration. Managing the two of those is a very costly endeavor. And why the CISOs today, any CISOs out there? I give you credit because the threats that exist are unparalleled, and these folks are phenomenal at what they do. Yes,

Kristin Streett (28:46):
Certainly losing sleep so that the business can get some sleep and not worry. That's right.

Kerry Gross (28:52):
Yeah. And the bar, you said bar keeps moving folks who are trying to access data the same, everything the world keeps evolving as a bank is evolving, right? And so you have to evolve alongside even the plans that you maybe have keep changing because everything else keeps changing, right? That's right. Well, I'm sure we could keep talking about this for a long time. We want to give folks a chance to access the report if they want to here, and any last minute wrap up comments that you, I would just highly encourage you to get into some of this data. This is just a light lift off of the deep research that you did and that American Banker did, and there's a lot of media information in here that you can take back to your organizations.

Greg Kanevski (29:35):
I'm very grateful for the partnership we have. Thank you for having us up here. To those out on the stage, out in the audience, this is what Kristin and I do. We come around, we speak to connect folks with one another in the industry, help talk to 'em, help them position them for success regardless of the company that, yes, we work for ServiceNow, obviously. But the point is we're a very small community. There's only a million people in the US that work in the banking environment, not including fintechs and whatnot, but there's only, so it's a very small community. We have to stick together and partner together, and let's just make sure we keep talking. Please feel free to look us up on LinkedIn and if we can help in any way, absolutely. We're here as a resource.

Kerry Gross (30:18):
Thanks, Gary. You're so welcome. And before I leave the stage, I just want to welcome McKinsey and RBC Clear will be following us, but thank you so much. If you want to find any of us, we'll be out here. Please feel free to come and talk to any of us.

Greg Kanevski (30:31):
Thank you.