What Is Cloud Banking and Why Are Banks Moving to the Cloud? 

What comes to mind when you hear the words cloud banking? Now, depending on your perspective, your initial thoughts might be quite different. As a consumer, it’s hard not to immediately conjure up images of happy people walking around on fluffy, white cotton terrain somewhere in the sky, making the same kind of point-of-sale purchases, e-transfers, and RRSP contributions that we make down here on Earth. (As if even in our fantasies we’re still burdened with managing our retirement savings and understanding contribution limits). Those imaginative thoughts about cloud banking, although a little whimsical, are kind of relevant, though. They capture one of the most important elements about the concept of the cloud services for banks and what we mean when we talk about cloud computing and cloud core banking: End consumers don’t need to think about how it all works.  

The cloud is simply a metaphor for a complex technological online network of hardware and software that allows organizations to deliver applications, databases, servers, data storage services, and computing power over the Internet. The term was initially coined by either a Compaq executive or a technologist back in 1996 (the jury’s still out) and was later introduced to the masses on August 9, 2006, when former Google CEO, Eric Schmidt, presented the term to conference attendees in San Jose, California. The amorphous, metaphorical cloud is intended to keep end users and consumers free from the minute details of the online network it represents—details like where data is physically stored, what kind of server it’s stored on, and how the data is transferred, protected, accessed, and managed. 

Since Google’s initial public declaration and definition of the cloud back in 2006, we’ve quickly come to adopt it and accept it as an everyday term in our technology lexicon that means our digital assets aren’t here—on a physical computer—but they’re somewhere else. We store our photos in the cloud. We access our music on the cloud. We live our social lives on the cloud. And we don’t pay much attention to the cloud itself or how those important pieces of our digital lives are stored or managed. They’re just our photos and our music and our social lives. Someone else can worry about the cloud and how it all works.

In a way, it’s perfect. It ultimately gives us the ability to forget about the complexities of the technology that makes it all possible, and instead, we can focus on the things that are most important to us.  

So, what if we did the same for banks? 

Cloud for banking is a deployment and delivery model that allows banks and financial institutions to manage core banking systems and applications in the cloud while leveraging on-demand access to increased computing power and resources to deliver core banking services and financial services online which is where the term cloud banking services comes in. 

Similar to cloud computing, cloud core banking offers the ability to let someone else worry about the cloud—about the physical infrastructure and the complex technological network and provisioning of hardware and software—so banks and financial institutions can focus on what’s most important to them: Providing consumers with exceptional financial services and personal banking experiences. 

Cloud Banking Will Help Financial Institutions Meet the Increasing Demands and Expectations of the Evolving Banking Consumer

Let’s start with consumers. When it comes to cloud banking safety, consumers want to know that their financial information and data is secure without knowing the details of a bank’s physical IT infrastructure. What’s important is that our banking services simply work when we need them to work. Whether a consumer’s bank is on the cloud or not makes no difference to the consumer—for now, anyway—since, as consumers, we’re generally already oblivious to how our financial data is stored and how it travels. Average consumers are not aware of the precise geographic location of data centers or the expansive networks, switches, and underlying technology and resources that make modern digital banking possible. To the average consumer, that infrastructure is already a kind of cloud. 

What do bank consumers care about? Consumers primarily care about their money—they want to know it’s safe, secure, and available. That’s been the primary consumer expectation in banking for a very long time, but those expectations are rapidly changing and evolving as more and more tech-savvy consumers, along with a maturing millennial demographic, are looking for better ways to manage their finances. Consumers are beginning to understand that more is possible, and it’s not difficult to see how data-driven banking applications and services can provide more insight into finances simply by leveraging everyday transaction data. As consumers become more aware of the innovation introduced by emerging fintechs and neobanks entering the market, they’re becoming more critical of the services they receive from their traditional banking providers. As a result, consumers are increasingly demanding exceptional digital banking experiences with more personalized—but, ironically, less personal and more digital—financial services. 

For financial services professionals and decision-makers, it’s a different story. 

Cloud Banking Provides Financial Services Decision-Makers with a Complex Mix of Risk and Opportunity

Financial services industry professionals faced with both the business operations and technological challenges of working in the highly regulated Canadian financial services industry have a very clear understanding of the differences between banking-on-a-(literal)-cloud and cloud banking—although, at times, both of those concepts may feel like pure fantasy. 

For financial services executives and decision-makers tasked with managing some of the largest financial institutions in Canada, the term cloud banking likely conjures up immediate concerns about compliance, consumer privacy, as well as a perceived increased risk and the potential for a data breach. After all, if you’re responsible for safeguarding your financial institution’s data, then wouldn’t it feel safer to have that data in your control, on a server you own and can physically touch, rather than in an intangible, metaphorical cloud

It’s one thing to store our photos on the cloud. It’s another thing to store the private financial details of hundreds of thousands of customers on the cloud.

On top of that, our closed legacy banking systems and our traditional physical infrastructure have been a pervasive, unwavering staple of the industry for so long. They’re elements that have contributed to the stability and collective trust that we have in the Canadian financial system as a whole. Do we want to shift to cloud banking to fix something that’s not broken? 

The problem is that technological obsolescence isn’t about broken technology. Our banking systems aren’t broken. Obsolescence happens when a newer, better solution replaces an older solution. The result is that the old technology, although functional, is no longer wanted.

Those same financial executives might have other initial thoughts about cloud banking, too. One’s that are more optimistic. That’s because it’s not hard to see the opportunities cloud banking offers and the promise of improving virtually all areas of a financial institution’s business operations, including improvements in cost efficiency, innovation, testing, speed, scalability, agility, and ultimately the simple ability to focus on improving those same digital banking and personalized financial services that consumers demand. With increased consumer expectations around a better banking experience driven by innovative fintech, neobanks, and challenger banks, cloud banking is quickly becoming an industry requirement to compete, operate, and participate in the future of banking and consumer-directed finance. 

As Canadian regulators look to other jurisdictions that have adopted open banking frameworks that emphasize consumer data rights, the Canadian industry is already quietly shifting toward a new paradigm where banking systems, partners, and service providers are all connected through APIs. Agility is only going to become more important as regulation promotes and enables change, and cloud banking promises that flexibility.

Maybe cloud banking has been a choice, an option, until now—one of many line items in a bank’s strategy focused on digital transformation

But cloud banking is quickly becoming a baseline requirement for the future of open banking and consumer-directed finance.

Why Are Cloud Banking Services the Next Logical Step for Banks and Canadian Financial Institutions? 

Cloud banking provides the opportunity to meet growing demands and evolving consumer expectations by removing some of the technological challenges that banks face with their own infrastructure and hardware. The banking cloud or cloud banking platform also allows banks to gain immediate access to additional servers and computing power on-demand, so they can focus on instant scaling when the institution experiences things like unexpected high-volume activity. 

That ability to simply turn on and off access to additional cloud computing banking resources improves an institution’s ability to conduct rapid testing and explore entirely new product development initiatives—two core elements that have the potential to drive financial innovation. After all, if a new development initiative fails, banks can simply remove their provisioned on-demand resources and move on to the next initiative with much less consideration for the upfront capital spent on physical servers and hardware.  

Along with cost efficiency and the flexibility to scale on-demand, cloud in banking is the next logical step for banks and Canadian financial institutions simply because of what it promises—banks can focus on their core businesses instead of managing their hardware. As banks and financial institutions migrate to the cloud, they’ll also be in a better position to engage with the ecosystem that will undoubtedly emerge from the recommendations and regulations that will drive consumer-directed finance in Canada.

The cloud itself is a metaphor, a vague comparison between two things that are nothing alike. Most banks aren’t in the business of investing in metaphors. But the thing about metaphors is that someone invested time in them. Someone pieced together the complex intricacies and minute details that gave it meaning and simply made it work. When it comes to metaphors, you don’t need to know how it was formed from complex combinations of 26 individual letters that made up sentences that communicated ideas. Sure, you could—but that’s probably a waste of your time. 

You simply need to know that someone else took care of the hard stuff so you could focus on the rest of the story.


https://www.technologyreview.com/2011/10/31/257406/who-coined-cloud-computing (Retrieved April 20, 2021)

https://www.bbvaresearch.com/wp-content/uploads/2016/04/Cloud_Banking_or_Banking_in_the_Clouds1.pdf (Retrieved April 22, 2021)

https://nvlpubs.nist.gov/nistpubs/Legacy/SP/nistspecialpublication800-145.pdf (Retrieved April 22, 2021)

https://www.google.com/press/podium/ses2006.html (Retrieved April 22, 2021)

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