As pres­sures mount on finan­cial insti­tu­tions to accel­er­ate their digi­ti­sa­tion efforts, many are mov­ing their oper­a­tions to the cloud. Yet what start­ed out as a way to improve areas such as data and ana­lyt­ics is now being applied to their core bank­ing sys­tems; enabling banks to poten­tial­ly trans­form their core busi­ness: how they lend.

About four in five banks plan to move at least half of their main­frame tech­nol­o­gy to the cloud, accord­ing to a sur­vey pub­lished in April by Accen­ture. About a quar­ter of those aim to do so before the end of this year.

“When we start­ed nCi­no in late 2011, cus­tomers were still eval­u­at­ing whether the cloud was some­thing that the finan­cial ser­vices indus­try would move towards,” says Char­lie McIv­er, man­ag­ing direc­tor for EMEA at nCi­no, a cloud-based bank­ing soft­ware provider. “Today how­ev­er, we see a rush to adopt. Finan­cial insti­tu­tions began to under­stand that if they’ve been delay­ing dig­i­tal trans­for­ma­tion, they can’t con­tin­ue to wait.”

McIv­er says that even those banks that have start­ed out on their cloud jour­ney are now seek­ing to opti­mise and accel­er­ate that adop­tion. “We are not spend­ing a lot of time talk­ing to the mar­ket about why banks need to move to the cloud; we’re talk­ing to them about how to move to the cloud, at speed, and to best effect,” he adds.

This shift is help­ing banks stream­line their busi­ness oper­a­tions and make the lend­ing process more effi­cient.

“The fun­da­men­tals of bank­ing remain: lend mon­ey to cre­ate val­ue,” says McIv­er. “How banks accom­plish this goal pro­duc­tive­ly and prof­itably, how­ev­er, is chang­ing. Years ago, if you were a bank and want­ed to get on the cloud to do lend­ing, you would’ve had to poten­tial­ly build some­thing in-house. Now you can get a pack­aged offer­ing with nCi­no and go live in months, not years.”

Changing consumer habits

Cus­tomers also increas­ing­ly want to apply for loans online, a major turn­around from the pre-Covid era.

“Two months before the pan­dem­ic, bor­row­ing mon­ey through the inter­net for a busi­ness was still a dif­fi­cult expe­ri­ence,” says McIv­er. “Fast for­ward a few months and banks were scram­bling to rapid­ly cre­ate new dig­i­tal sys­tems for loans and fund­ing, and the appli­ca­tions were sub­mit­ted via mobile devices from people’s liv­ing rooms.”

Cus­tomer expec­ta­tions have changed in line with the broad­er digi­ti­sa­tion of their lives. Not only do they expect finan­cial insti­tu­tions to pro­vide a faster, dig­i­tal bank­ing expe­ri­ence, but they also expect a more per­son­alised ser­vice. By using cloud-based core bank­ing tech, finan­cial insti­tu­tions can start to offer cus­tomers more bespoke loans as part of a wider rela­tion­ship lend­ing strat­e­gy, says McIv­er.

“Rela­tion­ship lend­ing is an increas­ing­ly effec­tive strat­e­gy because it helps insti­tu­tions devel­op a deep per­son­al rela­tion­ship with their cus­tomers, giv­ing them the abil­i­ty to guide cus­tomers through lend­ing deci­sions and options that are specif­i­cal­ly tai­lored to their indi­vid­ual needs,” he says. “Finan­cial insti­tu­tions of all sizes are embrac­ing rela­tion­ship lend­ing as an approach that pro­vides the best of both worlds: cus­tomers receive per­son­alised atten­tion that offers bet­ter val­ue, while bankers learn more about their cus­tomers’ needs over the course of their lives.”

That results in bet­ter lend­ing deci­sions, which ben­e­fits both the cus­tomer and the bank, says McIv­er: “Rather than pure­ly trans­ac­tion­al, this approach is high­ly con­sul­ta­tive, allow­ing finan­cial insti­tu­tions to build rela­tion­ships with their cus­tomers that can last a life­time.”

Using cloud ser­vices for core bank­ing can also help banks unlock a vast trove of pre­vi­ous­ly untapped data and new part­ners to learn more about their busi­ness.

“As finan­cial insti­tu­tions con­tin­ue their trans­for­ma­tion jour­ney, they are real­is­ing that hav­ing all that data in one place gives them oppor­tu­ni­ties with­in their mar­ket that they didn’t know were there,” McIv­er says. “It’s giv­en them a lot more trans­paren­cy into how their insti­tu­tion is run­ning and where they can go for­ward.”

Digitisation drives profitability

Using cloud ser­vices to pow­er core bank­ing func­tions can help banks become more prof­itable.

“By rethink­ing their busi­ness mod­els and embrac­ing the cloud and oth­er inno­v­a­tive strate­gies of dig­i­tal-only bank­ing and finan­cial ser­vices, tra­di­tion­al banks could boost rev­enues by near­ly 4% annu­al­ly,” says McIv­er.

That would result in more than half a tril­lion dol­lars in addi­tion­al rev­enues by 2025, accord­ing to Accen­ture.

“Using automa­tion, advanced ana­lyt­ics and oth­er emerg­ing tech­nolo­gies, banks have a real chance to increase busi­ness agili­ty, reduce costs and deliv­er enhanced cus­tomer and employ­ee expe­ri­ences,” McIv­er says. “Cus­tomers want to inter­face with effi­cient sys­tems that already have their infor­ma­tion; they don’t have the time or desire to repeat them­selves while yet anoth­er banker rekeys their infor­ma­tion.”

Rela­tion­ship lend­ing is an increas­ing­ly effec­tive strat­e­gy because it helps insti­tu­tions devel­op a deep per­son­al rela­tion­ship with their cus­tomers

Finan­cial insti­tu­tions that adopt state-of-the art cloud-based tech like the nCi­no Bank Oper­at­ing Sys­tem can solve that prob­lem by con­sol­i­dat­ing data in one secure, cen­tral loca­tion rather than being siloed across mul­ti­ple sys­tems, as well as part­ner­ing with new third par­ties, improv­ing the cus­tomer expe­ri­ence, says McIv­er: “This is just one exam­ple of how tech­nol­o­gy can be lever­aged to help meet the needs of cus­tomers, so they don’t have to go else­where to obtain spe­cialised ser­vices and loans.”

Dig­i­tal trans­for­ma­tion on its own, how­ev­er, is no longer a dif­fer­en­tia­tor for finan­cial insti­tu­tions. It is how they use that tech­nol­o­gy to cre­ate new prod­ucts and ser­vices that will help them stand out. “Banks need to go beyond becom­ing mere dig­i­tal ver­sions of them­selves and shift their per­spec­tive to put inno­va­tion, agili­ty, pur­pose, and sus­tain­abil­i­ty at the fore­front of real busi­ness mod­el trans­for­ma­tion,” McIv­er says.

Some finan­cial insti­tu­tions have been hes­i­tant to ful­ly embrace dig­i­tal trans­for­ma­tion, in part because they don’t want to dis­rupt exist­ing prac­tices that have been suc­cess­ful. He adds: “Banks are under­stand­ably reluc­tant to dis­card sys­tems and process­es that still dri­ve their prof­itabil­i­ty in the short-term, and it’s dif­fi­cult to take risks and make changes for an uncer­tain future.”

Yet giv­en the back­drop of rapid­ly chang­ing busi­ness and eco­nom­ic con­di­tions, finan­cial insti­tu­tions need to con­stant­ly adapt to improve oper­a­tional per­for­mance and ser­vice qual­i­ty for cus­tomers – and the only way to do that is through tech­nol­o­gy.

“At a time when banks are fac­ing unprece­dent­ed com­pet­i­tive pres­sures, the cloud offers a means to respond force­ful­ly,” says McIv­er. “Banks are going all-in on the cloud because it gives them increased speed and agili­ty, improved secu­ri­ty and new capa­bil­i­ties that enable them to grow rev­enue regard­less of what the future holds.”

---

Q&A: ESG is not as easy as ABC

Stew­ard Redqueen’s ESG data and ana­lyt­ics man­ag­er Claire Nooij says that while the ESG indus­try is boom­ing, banks face a major chal­lenge to address ESG issues in their lend­ing port­fo­lios – and many are ill-equipped to do so

What are the main chal­lenges banks face when try­ing to meet their ESG goals?

Banks face three big chal­lenges: address­ing cli­mate change in their lend­ing port­fo­lios, fric­tion between long-term goal set­ting in a short-term focused soci­ety and main­tain­ing their clien­tele amidst ris­ing ESG demands.

The Bank of Eng­land recent­ly made a 10-part pledge to advance the cli­mate agen­da. Mak­ing the finan­cial sys­tem more resilient to cli­mate-relat­ed finan­cial risks and to help the indus­try sup­port a tran­si­tion to achiev­ing net zero emis­sions are just a cou­ple of the pledges made. Cli­mate change forces banks to recon­sid­er activ­i­ties as part of their risk frame­work by ask­ing dif­fer­ent ques­tions than they pre­vi­ous­ly would have, such as what hap­pens to the abil­i­ty of clients to pay off their loans when they are hit by extreme droughts.

Financ­ing the green tran­si­tion is great, but what about the out­stand­ing loans in indus­tries that are infa­mous for being large emit­ters and that soci­ety heav­i­ly depends on? A bank might not want to give out such loans, but if we are depen­dent, par­ties jump in to finance it any­way and the world will not be bet­ter off.

Banks need to track their progress on inte­grat­ing ESG efforts so that they can improve their per­for­mance over time; what gets mea­sured gets man­aged

Anoth­er chal­lenge is the fric­tion between com­mit­ting to a long-term agen­da in a short-term focused soci­ety. Con­sid­er­ing the cur­rent pace of becom­ing net zero, 2050 is around the cor­ner. From a bank’s per­spec­tive it is ages away: at least a cou­ple of CEO terms. With most CEOs not look­ing fur­ther than four to five years ahead, clear own­er­ship to reach the end goal is lack­ing. At the same time, banks’ clients and investors increas­ing­ly demand that they focus more on ESG, so it’s also about mak­ing sure banks do not lose busi­ness by inad­e­quate­ly address­ing ESG. The com­mit­ment seems to be there, but how do they go from con­ver­sa­tions and goal set­ting to real­i­sa­tion? This is exact­ly where banks strug­gle.

How much focus should banks be plac­ing on ESG?

The sci­ence from the lat­est Inter­gov­ern­men­tal Pan­el on Cli­mate Change (IPCC) reports is clear: the costs of address­ing cli­mate change are huge. In light of that, banks will need to stop talk­ing and start act­ing. This means allo­cat­ing capac­i­ty to inte­grate ESG into poli­cies, process­es and per­for­mance reviews. Deci­sion-mak­ing process­es need to be recal­i­brat­ed for mean­ing­ful change through­out the organ­i­sa­tion.

Banks will also need to have a smart man­age­ment sys­tem that tracks sus­tain­abil­i­ty efforts and engage­ment with key stake­hold­ers. Final­ly, it is impor­tant that ESG is inte­grat­ed in the DNA of the bank: from pro­ce­dures and poli­cies all the way to the inter­ac­tion they have with clients.

What should a good ESG strat­e­gy look like for a bank?

First, giv­en the broad array of ESG aspects one could con­sid­er and the sub­jec­tive nature of ESG, it is impor­tant that a good ESG strat­e­gy has clear­ly for­mu­lat­ed mea­sur­able goals that take into account client char­ac­ter­is­tics, reg­u­la­tions and exter­nal com­mit­ments, like the Paris Agree­ment.

Sec­ond, ESG com­mit­ments need to be put into prac­tice by allo­cat­ing employ­ees, assign­ing respon­si­bil­i­ty and includ­ing ESG con­sid­er­a­tions in day-to-day activ­i­ties, such as loan appli­ca­tions and client onboard­ing. Final­ly, banks need to track their progress on inte­grat­ing ESG efforts so that they can improve their per­for­mance over time: after all, what gets mea­sured gets man­aged.

In what ways can dig­i­tal trans­for­ma­tion help banks improve their ESG com­mit­ments?

Banks, gen­er­al­ly speak­ing, are depen­dent on lega­cy IT sys­tems, which inhib­it their abil­i­ty to man­age ESG across their ser­vices. Dig­i­tal trans­for­ma­tion and ESG tools enable banks to stream­line process­es, like loan appli­ca­tions, across the com­pa­ny. Stan­dard­ised, dig­i­tal process­es for ESG man­age­ment enable banks to track ESG per­for­mance on a client, port­fo­lio and bank-wide lev­el. Infor­ma­tion from track­ing ESG per­for­mance, in turn, can be used for report­ing, client engage­ment and enhanc­ing over­all effi­cien­cy. Stream­lin­ing process­es through one cen­tral sys­tem does not only help banks start small by set­ting an ESG stan­dard, but it also enables banks to quick­ly scale up their ESG efforts and realise their ESG com­mit­ments.

To find out more, please vis­it ncino.com

F

---

Pro­mot­ed by nCi­no