Banking Transformation in the Digital Era with Cloud Ecosystem

The banking and financial services sector is growing slowly in meeting consumer needs, particularly in adapting to the digital realm. The low adaption in embracing digital transformation can significantly affect how Financial Institutions (FIs) cater to their customers in the real world.

FIs are under growing pressure from customers to provide a digitized financial service experience, particularly in Malaysia and other Southeast Asian countries.

Leveraging a strong cloud infrastructure to tighten data security, optimize operations, deliver improved customer experiences, and reduce costs is what businesses should look at. Cloud computing is emerging as a primary focus for IT leaders, C-suite executives, board members, and others in strategic decision-making positions.

In this article, learn how the cloud can be a catalyst for financial services’ digital transformation and a potential game-changer for how financial services will operate in the future.

Highlights

1. Malaysia’s government signed the Cloud Framework Agreement (CFA) with Google, AWS, Azure, and Telekom Malaysia.
2. There is a slower uptake in the implementation of Cloud Services by Financial Institutions and Digital Banking.
3. Central Bank Introduced a Risk Management in Technology (RMiT) Policy to enhance data security.
4. Malaysia introduced the MyDIGITAL initiative to strengthen regulatory requirements for Cloud users.
5. Malaysia’s digital workforce is elevating with Cloud Skilling

The Race to Digitize: Cloud Providers Are in Town

In response to the increasing demand for cloud services, the government has authorized the establishment of additional data centers to bolster the infrastructure. Taking the initial step, the government signed the Cloud Framework Agreement (CFA) with four prominent cloud service providers—Google, AWS, Azure, and Telekom Malaysia. This agreement aims to offer guidance to government organizations on the optimal utilization of cloud resources.

During the 2023 AWS Public Sector Day in Malaysia, Fahmi bin Mohamed Fadzil, the Minister of Communications and Digital in Malaysia, emphasized the pivotal role of cloud computing in facilitating Malaysia’s digital growth. In the event, it was highlighted that the government’s hybrid cloud model (MyGovCloud), is integrating with the private cloud (the Public Sector Data Centre) and the four prominent cloud service providers.

It was also highlighted that AWS is setting up a cloud computing infrastructure region in Malaysia, allowing government agencies and businesses to have access to over 200 cloud services. As a result, it helps agencies to store government data securely within Malaysia’s borders.

The cloud computing industry is anticipated to reach a value of US$3.7 billion (RM16.86 billion) by 2024, with a compounded annual growth rate (CAGR) of 13%. According to the Malaysian Reserve, half of the businesses plan to increase investment in cloud computing. Additionally, 84% of them are expected to fully migrate to the cloud within the next two years. This is due to the new needs that emerged during the pandemic. It also revealed that, a significant 56% increase in Malaysia’s adoption of cloud-based software, due to the pandemic.

Cloud Adoption among Malaysian Financial Institutions is Growing Slowly

Many FIs are actively pursuing greater flexibility and speed in their operations to adapt to the rapidly evolving landscape. Early in 2018, approximately 64.7% of Malaysian Financial Institutions (FIs) were already in the stages of formulating a cloud strategy, suggesting a positive initiation towards cloud adoption.

Research conducted by a cloud solution provider revealed that 86% of FIs prefer a hybrid cloud architecture for its high agility, cost savings, and scalability benefits. However, despite the inclination towards this model, the actual implementation of cloud solutions in the financial services sector is progressing at a slower pace. Many FIs have a presence in the cloud, but overall adoption remains gradual and steady.

From the PWC AICB (PwC Malaysia and the Asian Institute of Chartered Bankers) survey, we can see the main reason for slow cloud adoption. 82% of FIs see business threats with FinTech. Additionally, 42% of FIs think that only customers are ready to embrace FinTech.

Nonetheless, an increasing number of traditional FIs are acknowledging the necessity to adapt. About 59% of FIs state that they are presently engaging with FinTech companies. However, only 49% of Malaysian FIs agree or somewhat agree that their organizations have put FinTech at the heart of their strategy.

As for the five newly awarded Malaysian Digital Bank licenses, they are also showing a keen interest in adopting cloud solutions. Among them, only two have chosen to implement core banking systems on the cloud, utilizing services provided by a cloud solution provider.

What’s Driving Financial Institutions Moving Towards Cloud?

Fraud Detection

It leverages machine learning and artificial intelligence to adapt to emerging fraud patterns. This enables FIs to monitor customers’ transactions and activities in real-time. With advanced analytics algorithms, it can analyze extensive volumes of data, identifying patterns, irregularities, and suspicious behaviors instantly. It can generate alerts and allow FIs to take immediate actions to prevent financial losses when potential fraud is identified.

Cost Efficiency

It uses a ‘pay as you go’ pricing model to reduce data storage costs as opposed to paying a huge sum of upfront costs to deploy and maintain on-premise systems.

Greater Scalability

FIs have the flexibility they need to scale resources up and down whenever necessary with cloud services. As a result, they do not have to purchase resources for “peak load” as they can increase and decrease their capacity automatically when demand fluctuates. It optimizes their operations and prevents the over-allocation of resources.

Enhanced Data Security

Malaysia’s Central Bank released a Risk Management in Technology (RMiT) Policy for Financial Institutions. RMiT emphasizes the importance of establishing a secure framework to facilitate the adoption of cloud and other technological innovations. This is particularly crucial as Malaysia and businesses within the country transition towards digitalization.

With this, FIs can move with agility to keep up with the latest and rapid market shifts, leveraging multiple cloud analytics solutions to expedite and streamline their operations, and expanding their offerings while reducing cost.

Complying with Central Bank’s Regulatory Requirement while Using Cloud Services

Despite the numerous advantages of cloud technologies, FIs face a significant challenge in fully adopting this approach due to Malaysia’s strict regulatory requirements. However, there are plans in place to address and overcome these regulatory hurdles.

The Malaysian government has embraced a “Cloud First Policy”, by introducing the MyDIGITAL initiative. It indicates a strategic shift towards enhancing dependence on cloud services. This transformation aims to strengthen regulatory requirements for cloud services in Malaysia and guarantees robust data security and privacy for all cloud services users.

Starting 1^st June 2024, FIs with first-time adoption of public cloud services have to consult the Central Bank to perform an in-depth risk assessment before deploying cloud services. Additionally, the cloud providers will also have to be aware of the cloud adoption requirements issued by the Central Bank.

Cultivating a Robust Digital Workforce in Malaysia with Cloud Skilling

As Malaysia strives to emerge as a regional digital economy leader through the Malaysia Madani vision, aiming for a highly-skilled, prosperous, and sustainable economy, organizations are urged to embrace a digital-first mindset. This shift is essential for fostering innovation and orchestrating transformative changes within their businesses.

AWS pledged to train 29 million people worldwide by giving free training programs in Cloud Computing by 2025. They have assisted 13 million worldwide with access to cloud skills training. AWS has trained more than 50,000 individuals in Malaysia and one million individuals across ASEAN, since 2017.

Training initiatives play a crucial role in equipping the workforce for a digital economy and transforming people’s lives in Malaysia.  AWS did a study, and it was found that organizations that employ workers who are digitally advanced in digital technology and cloud technology can reap higher business growth and innovation.

In response to the ever-changing job landscape and skill requirements, Malaysia’s first listed Islamic financial services institution has initiated an extensive staff upskilling program. The program aims to provide over 4,000 employees with fundamental cloud skills through a mix of on-demand digital training, live instructor-led sessions, and collaborative group interactions. This effort is integral to the Financial Institution’s Digital Academy, a permanent learning center designed to drive and grow digital skills throughout the organization.