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ViewpointOctober 1 2019

Werner Vogels: banking on the cloud to build a brighter future

The cloud provides an agile, powerful and secure environment that inspires innovation and changes the way organisations think about the financial services industry's future.
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Werner Vogels

Over the past few years the financial services industry has come under more pressure than ever before – from increasing regulatory mandates to growing consumer demand for secure services and better, frictionless experiences. Combined with the business need to do more with less, recruit top talent and be more innovative, organisations are seeking an alternative to 'business as usual'.

That alternative for many financial institutions is the cloud. You might ask why one of the world’s most regulated industries is betting big on cloud. The answer is simple. They can compete at speed, protect their customers and get access to the most advanced analytical services, without breaking the bank.

A clearer vision

Companies across banking, payments, insurance and capital markets have all been vocal about how and why they have moved to the cloud. We’ve seen established organisations such as Allianz, Barclays, Goldman Sachs, HSBC and Standard Bank take a sharp shift away from the headache of managing on-premises data centre infrastructure to utilising the cloud to innovate. Some organisations, such as the Financial Industry Regulatory Authority, are even coaching other financial service institutions on lessons learned using the cloud, from migration strategies to instilling best practices.

But it is the new banks, such as Monzo, Tandem, Starling Bank and Bunq, that have changed the game for this industry. They are topping the customer satisfaction surveys because of the quality of their services and their ease of use versus traditional banking apps. These new banks are not only growing their customer number more quickly than traditional banks, but they are building a fan base among their customers – fans who eagerly await to see what is next from their bank. The way they are doing this is through rapid innovation and quick feature releases.

Bunq, a start-up bank from the Netherlands, is a great example. Every few weeks it hosts updates in front of hundreds of customers. This is a group of people who are excited and enthusiastic about a new forecasting feature. This rapid innovation cycle is what is setting new banks, who are building their businesses in the cloud, apart from traditional players.

But using the cloud to innovate is not just for new entrants. Using the cloud is a critical way for traditional players to compete at the same speed as these young companies. The exciting thing is that we are now starting to see some of these traditional players take the plunge and experiment with the cloud in creative ways.

Creativity in the cloud

At Amazon, CEO Jeff Bezos has always said: “If you’re going to take bold bets, they’re going to be experiments; and if they’re experiments, you don’t know ahead of time if they’re going to work. Experiments are, by their very nature, prone to failure. But a few big successes compensate for dozens and dozens of things that didn’t work.” This is one of the foundational principals at Amazon, and something we talk to customers about when moving to the cloud.

In today’s competitive market, financial institutions are always looking for ways to differentiate themselves and get ahead. Investing in the cloud leads to three key benefits that drive innovation: extracting new insights from traditional and alternative financial data; providing the scalability and agility to respond to market and business changes; and reducing the time and resources needed to manage and maintain technology infrastructure, all while operating with the highest security standards available and required in the financial services industry.

Data-led insights, enabled by the cloud, are providing organisations with the ability to make business-critical decisions about customer segmentation, market position, product pricing, risk, security, compliance and surveillance. This is something that would simply be cost prohibitive in an on-premises infrastructure environment. The cloud enables organisations to store and process huge volumes of data at scale in real time and run different types of analytics and machine learning quickly and easily. In fact, the cloud is the only viable way for financial services institutions to derive real insight from their data.

Moving to machine learning

We are already seeing companies increasingly turn to machine learning and artificial intelligence (AI), built in the cloud, to bring greater efficiency to existing processes, to extract deeper value from data sources, and to drive innovation more frequently.

For example, Emirates NBD is using Amazon Web Services (AWS) to build a personalised retail banking experience. The bank is leveraging Amazon Personalise, an AWS machine learning service that enables the development of individualised recommendations, to launch highly personalised retail banking applications. One of these applications is a personal finance manager that uses an automated, self-learning system to predict what each individual customer needs and match this with the most appropriate solution. The system also utilises Amazon Polly – a cloud service that uses advanced deep learning technologies to convert written content into human-like speech – in its automated call centre to further enhance customer interactions by delivering life-like voice banking experiences.

While organisations have traditionally found it challenging to make effective use of AI and machine learning models, financial services organisations can now use the cloud to create new insights from data and achieve process efficiencies with machine learning in much simpler ways. At AWS, we have been focused on bringing that knowledge and capability to our customers by putting machine learning into the hands of every developer and data scientist. We want to take technology that has historically only been within reach of a small number of well-funded organisations and make it as broadly available as possible.

Another example of a financial services company leveraging AI and machine learning is Aella Credit, which provides instant loans to individuals in emerging markets with a verifiable source of income. In emerging markets, identity verification and validation is a major challenge for people who do not have easy access to retail banking services. To help resolve this, Aella Credit uses Amazon Rekognition, a deep learning-based image and video analysis service, for biometric identity verification using their mobile application. Customers upload a photo of their government-issued ID and then take a photo of themselves in real time for verification. Aella Credit first verifies the government-issued ID against the government database, and then uses Amazon Rekognition to compare the two images to see if they are a match. With AWS, Aella Credit has improved the accuracy of face verification by more than 40%.

Using these types of services, the financial services industry will be able to derive greater insights, deliver hyper-personalised solutions, develop completely new ways to engage and interact with customers, and drive loyalty – not to mention the ability to help predict and prevent fraud. Understanding data makes decision making a science versus a guessing game.

Confidence in the cloud

While using the cloud to innovate is one thing, is it feasible in a highly regulated industry such as financial services? The short and definitive answer is yes.

At AWS, we take security and privacy extremely seriously, and our customers always own their data, and maintain the ability to encrypt it, move it and delete it. We constantly monitor a fluid regulatory environment, securing both the emerging, such as the EU-US Privacy Shield, as well as the most accepted and globally imitated, such as EU Data Protection.

We also enable customers to meet their specific vertical security and compliance needs, and constantly look into other certifications that will define the future. To date, AWS has achieved 21 internationally recognised certifications and accreditations demonstrating compliance with third-party assurance frameworks.

Additionally, newer technologies such as continuous monitoring help institutions to appropriately manage the operational risks within their cloud environment and ensure they have sufficient processes and security measures in place to support encryption, authentication and reporting.

We expect to see more automation in security with infrastructure and application checks that can help enforce security and compliance controls continuously while reducing human configuration errors. These processes allow financial institutions to maintain the confidentiality and integrity that their customers demand, while maintaining timely and accurate reporting required by industry regulators.

We encourage all financial institutions to create a toolkit that monitors their cloud environment from end to end, enabling them to identify and analyse risk events such as unencrypted data or an unsecured third-party service. With global regulations related to data privacy on the horizon, financial institutions must carefully consider how to manage data and security to ensure they are well positioned to remain compliant, while minimising risk and keeping an eye toward innovation.

The application programming interface-driven infrastructure of the cloud enables organisations to automate the development and operation of their application infrastructure. At AWS, we also take active measures to minimise the impact of potential events and maintain our security and resiliency through a variety of ways. For example, we build our cloud infrastructure in diverse geographic regions with multiple availability zones per region. This diffuses the potential for systemic risk in any industry or location.

Seizing the future

We have seen several innovative services and products born in the cloud over the past few years – from start-ups to the largest banks, broker dealers, insurers and market centres.

The financial services industry has recognised the cloud opportunity, and traditional players are now following the bank start-ups and leading the way. But we are still at the beginning of what is possible and we have only just started to scratch the tip of the iceberg in terms of how the cloud will transform the industry.

As more organisations experiment with cloud technologies, we will see new services and applications change the way we interact and do business – many of which we have yet to even dream of. The cloud will continue to give organisations the ability to remove traditional IT constraints, as well as computing and storage limitations. What lies ahead is an agile, powerful and secure environment that inspires innovation and changes the way organisations act and think about the future of the financial services industry.

Werner Vogels is vice-president and chief technology officer at Amazon Web Services.

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