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The role of cloud in scaling digital banking successes - Finacle

In the race to scale digital transformation in banking, the role of cloud has been at the forefront. Banks realize and acknowledge the potential of the cloud in driving unparalleled value gain across multiple fronts u2013 be it scaling digital engagement, driving business innovation, reducing costs, or achieving operational excellence.<br><br>Finacle and Google Cloud Platform on the need for accelerating cloud adoption and the potential impact of cloud across value streams<br><br>For More Info click here: https://www.edgeverve.com/finacle/research-reports/google-cloud-platform-scaling-with-cloud/

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The role of cloud in scaling digital banking successes - Finacle

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  1. Scaling Digital Transformation with Cloud Five key considerations for banks to maximize business value Inspiring Better Banking www.finacle.com

  2. Preface In the race to scale digital transformation in banking, the role of the cloud has been at the forefront. Banks realize and acknowledge the potential of the cloud in driving unparalleled value gain across multiple fronts - be it scaling digital engagement, driving business innovation, reducing costs, or achieving operational excellence. While the question of ‘why cloud’ is no longer raised banks still struggle with determining the best path to migration and measuring tangible business value from cloud implementation. There is no universal formula for adoption; every bank must devise a cloud migration strategy based on its context and circumstances. That being said, there are five foundational guideposts that every bank must consider on its cloud transformation journey. These include: ■ Scale cloud maturity by moving along the cloud continuum ■ Undertake multi-pronged transformation approaches for application migration ■ Embrace a multi-cloud approach to leverage best-of-breed capabilities across workloads ■ Adopt hybrid cloud ■ Migrate a sizable workload and look to unlock the full potential of the cloud This paper delves into the need to accelerate cloud adoption and provides insights on the potential impact of the cloud across value streams. It also highlights the current state of the industry and puts forth key recommendations to scale cloud success. 2 | External Document © 2022 EdgeVerve Systems Limited

  3. Table of content ■ The role of cloud in scaling digital banking successes ■ The current state ■ The path ahead - 5 key considerations for scaling cloud strategies and maximizing business value ■ Unlocking cloud potential with Finacle and Google Cloud 3 | External Document © 2022 EdgeVerve Systems Limited

  4. The role of cloud in scaling digital banking successes 4 | External Document © 2022 EdgeVerve Systems Limited

  5. Scaling digital successes with cloud The impact of cloud cuts across multiple dimensions Maximizing customer engagement Driving digital innovation Amidst proliferation of digital banking channels, cloud platforms and their host of powerful analytics tools can empower banks with insights driven interactions, omnichannel experiences and hyper-personalized service delivery, thus Emerging digital challengers are undercutting traditional banks with sophisticated platform-driven banking business models and ecosystem strategies. Cloud provides much-needed agility, which allows banks to build innovative products with a faster time to market and drive rapid upgrades to meet emerging needs. driving engagement at scale. Achieving operational excellence Multiplying value from modern technologies Siloed legacy systems stifle operational efficiency, raise costs, and pose reporting hurdles. They are also ill-equipped to handle scale/peak loads of digital banking transactions. Cloud allows for flexibility and scalability of IT infrastructure with agile foundations while bolstering resilience and reducing the cost-to-income ratio. Cloud serves as a catalyst and amplifies the impact of other modern technologies, such as edge computing, blockchain, Artificial Intelligence (AI), Machine Learning (ML) - thereby delivering superior business outcomes. 5 | External Document © 2022 EdgeVerve Systems Limited

  6. Maximizing customer engagement Cloud powers enhanced insights-driven propositions Customer expectations have undergone a tremendous shift given that they interact with superior digital experiences in all areas of their day-to-day lives. As a result, they seek modern banking solutions that are duly integrated with their day-to-day lives, can improve their financial well-being, and help them better manage their finances. They expect and deserve fully personalized, contextual interactions throughout their consumption journey. of banking respondents believe that cloud can help financial services institutions adapt to changing customer behaviors and expectations1 91% With more than 90% of banking transactions occurring on digital self-service channels, there is a huge opportunity for banks to tap into customer data and unearth intelligence. Data-driven insights can help them anticipate customer needs and fulfil them across channels and devices. Banks can craft tailor-made customer-centric solutions for different customer personas. Banks across the globe handle over 1.9 petabytes3 of data each day, on average. However, traditional legacy systems were never built to handle volumes of this scale. In fact, banks currently use only 0.5% of available data4 This hinders banks’ availability to capture, manage, and process huge data volumes across multiple sources. of banking respondents considered inadequate data analytics capabilities as a major impediment to holistic digital transformation2 51% Cloud helps banks democratize data and gain from seamless and unified data access, decentralized ownerships, real-time interactions, elastic scalability and superior security. Cloud-native analytics tools and machine learning capabilities available on the cloud can also enable banks to deliver enhanced insights-driven engagements. Source: 1 - Google Cloud report on cloud adoption in FSI, Aug 2021, 2 - EFMA - Infosys Finacle Report, 3 - Deutsche Bank estimates, 4 - PWC estimates 6 | External Document © 2022 EdgeVerve Systems Limited

  7. Driving digital innovation Cloud is at the heart of emerging Platform models and ecosystem strategies in banking A recent innovation survey conducted by Infosys Finacle and EFMA found that only 30 percent of bankers believe that incumbent banks will lead innovation in the digital age. The lack of confidence in their innovation capabilities is not completely unfounded - in recent years, product and service innovations have been led by FinTech startups rather than traditional banks. of banking respondents believe that cloud can support the creation of innovative new products and services for financial services institutions 90% The emergence of cloud, connected digital ecosystems, and entrance of non-traditional competitors are blurring lines between industry and competition. Players across the value chain - banks, fintechs, non-banks, tech giants – must come together to deliver greater value for customers. These trends are driving newer business models such as embedded finance and marketplace banking. Source: Google Cloud Report – Cloud Adoption in FSI, Aug 2021 Average universal bank vs a leading digital-only bank – An agility comparison No. of monthly updates/releases Time to market % of workforce dedicated to technology Banks must boost their agility and improve time-to-market for new customer-centric products by adopting iterative technology development and deployment approaches. Cloud plays a critical role in enabling this by allowing banks to drastically cut down on their technology resourcing timelines from months to days, or even hours. Newer propositions based on microservices, continuous deployment, and DevOps will play a critical role in banks’ innovation journeys. Average universal bank 50-100 30-60 days 5-20% WeBank China 1000 10-11 days 60% Source: McKinsey Global Banking Annual Review 2021 7 | External Document © 2022 EdgeVerve Systems Limited

  8. Achieving operational excellence Cloud drives resilience at scale, with a lower TCO and high performance With nimble, agile fintechs and digital-first banks setting new standards of cost efficiency over the past few years, banks have been under unprecedented flux. Return on Equity and Cost to Income ratio for most banks have been far off from the desired range. With digital-first transactions and remote-first operations becoming the norm post pandemic, resilience is more important than ever. Banks are expected to provide 24/7 services with utmost security and availability, without any outages and disruptions. Areas where public cloud services could increase efficiency Majority of employees use cloud sotutions Data Security 64% Risk Assessments 91% Therefore, it is critical for banks to get their operations in order. Cloud lends banks the much-needed robustness and stability of infrastructure while keeping the associated operational and indirect costs at a minimum. Along with associated technologies and capabilities such as microservices, Containers, DevOps, the cloud streamlines the software development lifecycle and brings scalability, enabling faster and more flexible deployments. Cloud capabilities such as dynamic scaling and auto load balancing enable high performance under peak workloads. 63% Regulatory Reporting 58% Regulatory Compliance 55% of banking respondents believe that cloud can enhance financial services institutions’ operational resilience Fraud Protection 53% By leveraging managed cloud services on the public cloud, banks can drastically reduce operational cost related to people, licenses, support, and maintenance. Moreover, banks can explore Software-as-a- Service (SaaS) options that allow them to subscribe to and consume technology as required, eliminating the cost of managing, maintaining and upgrading infrastructure. Process Audits 45% Source: Google Cloud Report – Cloud Adoption in FSI, Aug 2021 8 | External Document © 2022 EdgeVerve Systems Limited

  9. Multiplying value from modern technologies Cloud acts as a catalyst to significantly amplify the benefits of modern technologies Modern technologies such as AI, ML, blockchain, and edge computing require massive computing power and storage capabilities to function effectively and unlock significant benefits. The cloud provides these capabilities and enables their success. Confidence in the ability to unlock value from data and AI makes a quantum leap with 80% or more business functions in the cloud. 57% 31% 9% 3% 80% or more A recent cloud study from Infosys found that financial institutions gained significant AI success with the cloud. With scalable cloud services, almost one- third of banking respondents reported having very developed integrated AI capabilities. 30% 49% 12% 9% 9% 60% to 79% Cloud storage and processing platforms also provide a foundation for AI models to unleash the value of big data analytics. Further, the cloud enables banks to access the latest AI tools through pay-per-use/subscription-based models. 30% 45% 15% 9% 40% to 59% 20% 48% 48% 21% 11% 11% 21% 20% 20% to 39% The combination of blockchain technology and cloud computing brings endless possibilities since the cloud elevates the scalability and performance of blockchain and blockchain enhances cloud security, more so in edge computing propositions. Also, the importance of cloud becomes paramount with overload of data interactions driven by IoT devices. 22% 22% 36% 29% 29% 13% 36% 13% Upto 19% .. Somewhat developed Very developed Neutral Somewhat to very undeveloped Emerging technologies, working in tandem with the cloud, can create new synergies and accelerate the transformation journeys for banks, helping them future-proof their technology landscape. Source: Infosys Cloud Radar Report, 2021 9 | External Document © 2022 EdgeVerve Systems Limited

  10. The current state 10 | External Document © 2022 EdgeVerve Systems Limited

  11. The progress so far has been slow There are several concerns and roadblocks on the way Many are in their journey, motoring along the cloud path Some banks are still skeptical of embarking on cloud transformation 16.2% 41% Top reasons for not using cloud services (among organizations with majority of employees using on-premises strategy) of banks use private cloud to host most of their systems, followed by hybrid cloud (31%) and public cloud (29%) CAGR of public cloud spending by banks between 2019-2024. This is 3.5X of banks’ overall IT spending growth in this period 38% 36% 33% Large investment of resources for the regulatory approval process Concerns about the cost of moving to the cloud Concerns about being over-charged for cloud fees Three most sought after use cases of cloud in banking 67% Digitization and automation of traditional and reporting processes 22% 23% 57% Integration with open banking and alternative payment systems Lack of darity on regulatory requirements Too much time for regulatory approvals 55% Enhancing threat detection and fraud prevention Source: Google Cloud Report – Cloud Adoption in FSI, Aug 2021 Source: Infosys Cloud Radar Report, 2021 11 | External Document © 2022 EdgeVerve Systems Limited

  12. The path ahead 5 key considerations for scaling cloud strategies and maximizing business value 12 | External Document © 2022 EdgeVerve Systems Limited

  13. The five key considerations for getting cloud journeys right #1 #2 #3 #4 #5 Scale cloud maturity by moving along the cloud continuum Adopt multi-pronged transformation approaches for application migration Embrace the multi- cloud paradigm Play the hybrid game Go the full distance and unlock true value Banks must adopt a hybrid multi-cloud strategy to unlock value and take a best-of-breed approach for choosing the most suitable cloud provider for different workloads and requirements. With a promise of agility, flexibility and control, hybrid cloud offers the best of both worlds. The key is to strike the right balance between on- premise, private and public cloud options depending on the use cases. A bank’s cloud transformation journey typically progresses along a continuum, from Infrastructure as Service (IaaS) to Platform as a Service (PaaS) to Software as a Service (SaaS). To scale, banks must progressively move mission critical applications across this continuum, on priority. A host of transformation approaches are available, such as rehosting, refactoring, re- platforming, and more. A bank must choose an approach based on factors such as application size, customization needs and the level of transformation skills. Measures of cloud tokenism do not work anymore. Banks must move a critical mass of at least 60 percent of their workloads to cloud to achieve optimal results. Source: ‘Banking on Cloud: The next lap’, Infosys Finacle, 2022 13 | External Document © 2022 EdgeVerve Systems Limited

  14. Scale cloud maturity by moving along the cloud continuum Driving the right shift On-premises SaaS IaaS PaaS One of the foundational objectives of cloud transformation is to free bank staff from the tedium of managing technology infrastructure so they can focus on higher value tasks. Applications/Data Applications/Data Applications/Data Applications/Data Banks can scale the cloud maturity curve by journeying along a continuum that has on-premise deployment at one end and Software as a Service at the other, with Infrastructure as a Service and Platform as a Service in between. Middleware Middleware Middleware Middleware OS configuration OS configuration OS configuration OS configuration For most banks, the cloud journey starts with an IaaS model that frees them from buying and maintaining own hardware. Contemporary offerings from cloud service providers such as Google Cloud’s Anthos that enable banks to avail IaaS benefits on prem. Virtualization Virtualization Virtualization Virtualization Middleware Middleware Middleware Middleware Compute/servers Compute/servers Compute/servers Compute/servers However, many banks are now realizing the compounding value as they move to the right of the continuum. In fact, it is not essential to go on a linear journey from on- premise to IaaS to PaaS, before arriving at a Software as a Service-based operating model; banks can go directly from hosting infrastructure within their premises to subscribing to software as a service on cloud, which is where the greatest value lies. Storage Storage Storage Storage Networks Networks Networks Networks Provider Managed Financial Institution Managed Many banks have seen this non-linear approach work well in areas such as CRM and marketing automation. What’s more, many of today’s banking software packages are ready for true SaaS propositions, helping banks move in the right direction. To scale the journey, its time banks shift mission critical applications along the continuum, rapidly. The cloud continuum Source: Celent report ‘Public Cloud Adoption in Banking’, 2020 14 | External Document © 2022 EdgeVerve Systems Limited

  15. Adopt multi-pronged transformation approaches for application migration Direction of applications in the cloud2 Mean Calculation Gartner estimates that 85%1 of the existing enterprises’ core IT applications – such as legacy mainframe, midrange, ERP, UNIX-based applications – are not built for cloud. When banks embark on cloud transformation, they must also modernize their application landscape for cloud-based operations. They have a number of well-understood transformation approaches – Rehosting, Refactoring, Re-platforming, Replacing, Recomposing, and Rebuilding – each with their own strengths and limitations. Lift and Shift: Traditional, Noncloud Applications Running Unmodified in a Cloud Environment 19.4% 17.5% Today In the future Lift and Optimize: Traditional, Noncloud Applications Running With Modifications in a Cloud Environment 19.6% 18.6% Refactor: Traditional, Noncloud Applications Utilizing Cloud APls and Middleware 20.0% 18.2% The goal should be to pick out the best one among these and apply it throughout the application landscape. Depending on the size and customization of their applications, and the level of transformation skills (internal as well as partners’) banks should draw up an appropriate roadmap, whose priorities are based on business value, criticality and risk of application transformation. Replace: New Applications Replacing Traditional Noncloud Applications 18.8% 21.5% 20.0% Build or Buy: Brand New Applications 22.1% One of the popular strategies includes implementing the strangulator pattern to phase out existing legacy applications with services from cloud native applications. These services can co-exist on cloud while legacy applications run on premise. Gradual proliferation of cloud native services will replace existing legacy application services with minimal disruption to banks. 0% 15% 30% n = 366 use public cloud infrastructure; excluding don't know/not sure D2. What is your orgnization's plan for public coud application today/in the next two years? Source: 1 - Gartner report ‘Break Down 3 Barriers to Cloud Migration’, 2021; 2 - 2020 Gartner Cloud End-User Buying Behavior Survey 15 | External Document © 2022 EdgeVerve Systems Limited

  16. Embrace the multi-cloud paradigm Host of opportunities and challenges ahead As the cloud landscape matures, more and more cloud service providers are differentiating themselves beyond computation and storage capability, on the basis of managed services and niche innovation enablers. Some are going further to offer industry-specific cloud platforms provide tailor-made security, standards, and controls for the industry. 88% Multi-cloud exposure allows banks to choose the best-of-breed cloud provider for each workload. Banks can avoid vendor lock-in, and negotiate the best terms with providers, the advent of many more of whom is imminent. Not only that, data residency and other regulations may also require banks to distribute their workloads across two or more clouds (vendors). One way or the other, most banks will end up working with several cloud partners. Considering implementing multicloud strategy in the near future A hybrid multi-cloud environment where applications and data reside in the private and public clouds of different cloud providers requires banks to adopt new ways of working; this poses several challenges, the foremost being an increase in operational complexity and heterogeneity. Also, the initial lack of standardization in integration management and processes will raise some security concerns and require specific skill sets. Moving applications across cloud landscapes will become complex, and containerized deployments will become table stakes. (among those not currently using multicloud strategy) All these complexities can be overcome easily with cloud-native, cloud-agnostic architecture. One way to create the right conditions for multi-cloud is by following Cloud Native Compute Foundation’s recommendations on designing cloud-native, cloud-agnostic applications. Importantly, multi-cloud centric processes, design, and security should be planned in advance and not as an afterthought. This helps to build a multi-cloud mindset and eases adoption. Source: Google Cloud report on cloud adoption in FSI, Aug 2021 16 | External Document © 2022 EdgeVerve Systems Limited

  17. Play the hybrid game The present and near-future is hybrid High When one considers the various alternatives in cloud migration – risk versus return, public versus private cloud, scale versus security – hybrid cloud emerges as the most viable option. The only question is, what is the best configuration or mix? Traditionally, large and mid-sized financial institutions favored private cloud as it offered them more control; now, they are experimenting with public cloud for applications that are not mission critical. In our recent research on cloud adoption, 41% of the banks covered had chosen private cloud, 28% had gone with a public cloud, and the remaining 31% were using a bit of both. Public cloud Shared resource pool | on-demand computing | Elasticity | lower TCO Hybrid cloud Migration flexibility | Future-proof transformation | resource optimization Scalability As more organizations switch to hybrid cloud, the challenge for their technology leadership will be to strike the right balance between on-premise, private and public cloud options based on use cases. Private cloud Control | Customization | Security | Compliance Contrary to popular perception, public cloud is not always the best option; there are many situations where the limitations of public cloud, such as latency, governance, compliance issues and performance, rule it out, and private cloud is what works. The other reality is that banks still have many legacy applications that are not cloud-ready and therefore need to be maintained on the premises. Hybrid is the way forward, at least for the foreseeable future. Low Low Systems control High With the right approach, hybrid cloud can deliver the best of both worlds Source: ‘Banking on Cloud: The next lap’, Infosys Finacle, 2022 17 | External Document © 2022 EdgeVerve Systems Limited

  18. Go the full distance and unlock true value Half measures will no longer work Changes in goals <14% One of the most lingering questions in cloud transformations has been - how long will it be before banks see a decent ROI. The answer to that is – as long as it takes them to go the full distance. Offense objectives Speed: Accelerate deployment High priority banks have achieved critical mass in cloud adoption by moving 60% of applications to cloud Our research and experience unequivocally shows that cloud tokenism does not produce optimal results. It is only when cloud adoption achieves critical mass – at least 60 percent of the workload has migrated – that meaningful results start to flow. This is true for all types of cloud deployments – private, public, hybrid and multi-cloud. Also, the value increases with the adoption of SaaS models, when business operations run on the latest versions to maximize value from technology investments. Capability: Improve digital capabilities Scale: Achieve scale seamlessly Defense objectives Access: Enable remote access Low priority However, an overwhelming majority of banks (86%) are still far away from achieving critical mass. Banks need to go the full distance in their cloud journey to get anywhere. When they do that, the benefits of cloud expand beyond defensive values such as cost, access, and resilience; banks can unlock the true value of their cloud investments, and also become more competitive by improving speed of innovation and acquiring digital capabilities such as AI, analytics, blockchain and more. Costs: Better manage costs Resilience and security: Foster business resilience 2018 2020 2022 Banks’ cloud objectives are shifting from being defensive to offensive, with the 2020 pandemic being an inflection point Source: Infosys Cloud Radar Report, 2021 18 | External Document © 2022 EdgeVerve Systems Limited

  19. Unlock true cloud potential with Finacle and Google Cloud 19 | External Document © 2022 EdgeVerve Systems Limited

  20. Finacle - A leader in digital banking solutions Front-to-Back Solution Suite Inspiring Better Banking across Inspiring Better Outcomes^ Core Banking 100+ Countries 3.9% points lesser cost to income ratio Digital Engagement Over a Billion Consumers 33% higher returns on assets than others Corporate Banking Millions of Businesses Wealth Management 1.7 Billion Accounts 19% higher returns on capital than others Treasury… 1,10,000 Branches Source:^An assessment of the top 1000 banks globally 20 | External Document © 2022 EdgeVerve Systems Limited

  21. Banks choose Google Cloud because: Power of Google Ecosystem Leveraging the power of data Industry leader in AI/ML Multi-cloud choice and flexibility Commitment to sustainability Best-in-class security Full control, privacy and protection of banks’ data 100% renewable energy, zero net carbon emissions Faster, easier, more accurate decisions Develop once, run anywhere, access everywhere Instant insights from internal and external data that lives anywhere Leverage the full value of Google across organization 21 | External Document © 2022 EdgeVerve Systems Limited

  22. Finacle offerings on Google Cloud are designed to help banks scale digital A cloud-native, cloud-agnostic solution suite Feature-rich Faster time to market Scalability Security Integrations On cloud, digital banking systems integrate with other large workloads, which can also move to cloud: GL, Content Management, AI solutions, AML, and Risk Management Cloud compliance enables Finacle customers to use robust controls, that meet security and regulatory standards, to ensure data protection in the cloud Google Cloud Auto Scaling helps traditional banks and startups ramp up digital banking compute services, in line with key areas of business growth. Deployment of Finacle solutions on Google Cloud is faster than on- premises, speeding up innovation and time to market for new banks, or bank-within-banks. Finacle offers a wide range of functionally rich digital banking solutions for banks and FIs across segments Finacle on Google Cloud will enable quick release of new features and ensure easier fixes 22 | External Document © 2022 EdgeVerve Systems Limited

  23. Contributors Rama Gabbita Global Head, GSI Partner Industry Solutions - FSI, Google Cloud rgabbita@google.com Diwakar Mandal Product Marketing Manager, Infosys Finacle diwakar.mandal@edgeverve.com 23 | External Document © 2022 EdgeVerve Systems Limited

  24. finacle@edgeverve.com www.finacle.com www.linkedin.com/company/finacle twitter.com/finacle ........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................ For more information, contact finacle@edgeverve.com www. finacle.com ........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................ © 2022 EdgeVerve Systems Limited, a wholly owned subsidiary of Infosys, Bangalore, India. All Rights Reserved. This documentation is the sole property of EdgeVerve Systems Limited (“EdgeVerve”). EdgeVerve believes the information in this document or page is accurate as of its publication date; such information is subject to change without notice. EdgeVerve acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. This document is not for general distribution and is meant for use solely by the person or entity that it has been specifically issued to and can be used for the sole purpose it is intended to be used for as communicated by EdgeVerve in writing. Except as expressly permitted by EdgeVerve in writing, neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without the prior written permission of EdgeVerve and/ or any named intellectual property rights holders under this document. 24 | External Document © 2022 EdgeVerve Systems Limited

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