DIGITAL BANKS AND THE POWER OF THE CLOUD TRACKER® JUNE 2020 How N26 Is Using The Cloud Pacific National Bank to use How the COVID-19 pandemic To Fulfill Mobile-First cloud platform to support is advancing FIs’ cloud Customers’ Expectations its digital-only bank migration plans Page 8 Page 13 Page 20 FEATURE STORY NEWS AND TRENDS DEEP DIVE TABLE OF CONTENTS 03 WHAT’S INSIDE Recent cloud and digital banking developments, including how CaixaBank is using cloud technologies to enhance customers’ experiences and why Italian banking group Intesa Sanpaolo is creating cloud-based data centers in Turin 08 FEATURE STORY An interview with Lindsey Grossman, director of product at challenger bank N26, on how the FI uses cloud banking to address mobile- first customers’ shifting expectations NEWS AND TRENDS 13 Recent cloud banking headlines, including reports from Ant Financial that many Chinese banks have begun utilizing its cloud platform solutions and a look at how Utah-based Continental Bank is leveraging the cloud to scale its digital banking services for more businesses DEEP DIVE 20 A detailed analysis of the factors preventing legacy FIs from migrating to the cloud and ACKNOWLEDGMENT how the COVID-19 pandemic is forcing them The Digital Banks And The Power Of The to upgrade their core banking innovation ® Cloud Tracker was done in collaboration strategies with NuoDB, and PYMNTS is grateful for the company’s support and insight. PYMNTS.com retains full editorial control over the following findings, methodology and data analysis. 24 ABOUT Information on PYMNTS.com and NuoDB WHAT’S INSIDE he financial industry is continuing to take stock of pandemic-related economic turbulence. Some of the United States’ top financial institutions (FIs)experienced plummeting profits in Q1 2020, for example, and bank customers are still con- fronting their own economic worries. This means it is imperative for banks to Tprovide speedy, seamless services to budget-conscious consumers who are focused on keeping their own expenses as low as possible. FIs are considering numerous new tech- are beginning to do so. Banks are spending nologies to add speed to their operations approximately 15 percent of their yearly without compromising clients’ and custo- operating budgets on technology upgrades, mers’ personal data, including automated according to one study, and there has tools, artificial intelligence (AI) and cloud been an increase in partnerships between technologies. Migrating to the cloud could third-party cloud technology providers and enable these entities to process larger global FIs eager to enhance their online volumes of data faster, especially if they platforms. Many of these legacy banks are also leverage AI solutions, which can ana- also planning to integrate AI tools, but their lyze and categorize information far quicker reliance on outdated infrastructure could than human employees. A recent study be hindering their cloud migration plans. revealed that the share of financial execu- These FIs will have to overcome such fric- tives who believe implementing such tech- tions to keep pace with competitors. nologies will be crucial to global banking’s future has risen to 66 percent, whereas 42 AROUND THE CLOUD BANKING percent said the same in 2019. WORLD Migrating to cloud- and AI-based solutions Spanish FI CaixaBank announced that it could help FIs handle growing calls for will strengthen its existing technology pro- faster banking tools during the COVID-19 vider partnerships to craft products that pandemic, and recent trends show they appeal to digital-first consumers. It will © 2020 PYMNTS.com All Rights Reserved June 2020 | 3 What’s Inside work with technology provider IBM to roll out products that provide nuanced insights into consumers’ financial needs, extending a collaboration that began in 2011. The new solutions include cloud-based servers that can more quickly finalize payments and transactions while also delivering faster and more personalized answers to consumers’ banking questions. The initiative will pair the bank’s automated and AI-based tools with IBM’s cloud technologies. Italian banking group Intesa Sanpaolo is also looking to launch several initiatives by integrating AI with the cloud, and it is turning to Google Cloud and telecommuni- cations firm TIM to build out these capabil- ities. Intesa Sanpaolo will utilize Google’s servers and technologies and TIM’s data centers in Turin and Milan to create dedi- cated Cloud Regions in the cities, according to a recent press release. The companies will use these two Cloud Region facilities to study potential innovations with AI and automated tools, allowing startups and other firms to experiment with these tech- nologies to determine how they can best be used with the cloud. Legacy FIs are still facing challenges sur- rounding innovating their digital platforms at speed, however. One recent study found that 43 percent of these banks see their © 2020 PYMNTS.com All Rights Reserved June 2020 | 4 EXECUTIVEDigital Banks And The Power Of The Cloud Tracker® INSIGHT outdated core banking infrastructures and How can combining AI with a cloud- the costs of migrating to the cloud as major based infrastructure better help obstacles to innovation. It also revealed banks address the challenges that that more than 40 percent of FIs spend come with increased data and digital transaction volumes? between 10 percent and 30 percent of their yearly IT budgets on issues stemming from AI is poised to make a profound impact on legacy operations. This represents a signif- the banking sector. From global customer icant amount of spend, yet many FIs are acquisition efforts to real-time personaliza- tion of the user experience to infrastructure suffering from a lack of available talent — technology management, the opportunities including skilled engineers and developers are endless. As it specifically relates to [the] — to help them maximize these capabili- latter, AI fused with cloud-based infrastruc- ture offers banks the opportunity to differen- ties. Third-party cloud technology provid- tiate their organizations by: ers could be one way to bridge this talent • Reducing total cost of ownership: gap. As AI learns the patterns of the day-to-day operations, it will be able to automatically For more on these stories and other cloud adjust resource utilization and services on banking headlines, check out the Tracker’s real-time cost assessments balanced with News and Trends section (p. 13). processing efficiency. • Increasing global reach: HOW N26 IS USING CLOUD CORE As banks use their digital presences to think globally, AI will be able to recognize trends BANKING FOR NIMBLE MOBILE happening around the globe and make key INNOVATION technology decisions based on an optimized experience for new customers in a given Fifty-five percent of consumersreport region at the lowest cost to acquire. that they prefer mobile banking now that • [Enhancing] security capabilities: the COVID-19 pandemic has shuttered Leveraging AI and cloud-based technology, brick-and-mortar branches, up from the banks will be able to better identify personal 47 percent who said the same before the information, secure it in the optimal environ- ment and, when necessary, protect them- crisis. These consumers are not looking to selves against attacks with greater speed and replicate their brick-and-mortar branch effectiveness. experiences on screen, however, and are While the utilization of AI alongside cloud- instead seeking seamless access to per- based infrastructure may be limited today, sonalized online services. Banks utilizing the impact of rising data costs coupled with the increasing ease of moving between cloud providers will be a catalyst for adoption. ARIFF KASSAM, chief technology officer atNuoDB © 2020 PYMNTS.com All Rights Reserved June 2020 | 5 What’s Inside legacy infrastructure may struggle to ful- DEEP DIVE: fill customers’ expectations as these FIs’ WHY THE COVID-19 PANDEMIC systems strain to handle expanding digi- IS PUSHING LEGACY FIs’ CLOUD tal transaction volumes and offer more MIGRATIONS FORWARD tailored customer service. This contrasts The COVID-19 pandemic has caused a with cloud-based banking, which allows rapid increase in the number of consumers banks to preserve customers’ digital using online banking tools worldwide. Con- account access and create new features. sumers require seamless access to their In this month’s Feature Story (p. 8), Lind- bank accounts to pay their bills or make sey Grossman, director of product at chal- daily transactions, but legacy FIs’ outdated lenger bank N26, explains how the FI’s core banking infrastructures are preventing cloud-based infrastructure helps it meet them from adequately supporting these mobile-first customers’ needs. functions. Many banks are thus examining new ways to shore up how they process transactions on their networks, and some could find that migrating to cloud-based platforms allows them to more easily han- dle growing volumes of data. This month’s Deep Dive (p. 20) examines the traditional barriers that have kept legacy FIs from migrating to the cloud and details how the COVID-19 pandemic may be accelerating their plans to do so. © 2020 PYMNTS.com All Rights Reserved June 2020 | 6 Digital Banks And The Power Of The Cloud Tracker® 66% 15% 43% Portion of FI executives Share of FIs’ typical Portion of legacy FIs who believe emerging yearly operating costs that see outdated IT technologies will be that go toward infrastructures and critical to the future technology-related the costs involved in cloud of banking expenses integration as significant innovation barriers 55% 5 YEARS Share of legacy FIs Length of time it can that still lack digital take FIs to fully complete maturity in their core core banking banking systems infrastructure switches © 2020 PYMNTS.com All Rights Reserved June 2020 | 7 HOW N26 IS USING THE CLOUD TO FULFILL MOBILE-FIRST CUSTOMERS’ EXPECTATIONS © 2020 PYMNTS.com All Rights Reserved June 2020 | 8 Digital Banks And The Power Of The Cloud Tracker® CONSUMERS ARE LEANING HEAVILY ON DIGITAL BANKING TOOLS DURING THE COVID-19 PANDEMIC, and studies suggest that they will continue to do so in its wake.