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Cloud Computing Compounds New Financial Tech Push

Cloud-based data solutions have created many new ways for companies to optimize their analytical processes. The materialization of the cloud era is beginning to be felt by the heavily regulated financial services field, where the burden of compliance and standards are being lifted by digitalization.

For financial firms, implementing cloud-based IT solutions is likely to cost less than upgrading or replacing bespoke legacy IT systems across most applications and configurations. The flexibility and scalability of cloud infrastructure allows for instant experimentation, immediate results and efficient exits. This essentially eliminates the need to go through long cycles of purchasing, installing and managing server equipment, empowering companies of all sizes to create new applications when they need them, scale them as appropriate, and turn them off when no longer necessary.

Accenture has just recently launched a new cloud-based data analytics utility to help US banks enhance and manage their risk-management and other functions. The Accenture Financial Crime Analytics Utility focuses initially on risk-management capabilities, including anti-money-laundering (AML) compliance. The utility provides a common, secure platform to which banks can upload their data, enabling them to achieve the benefits of scale they could not accomplish individually. It gives banks access to an application store and data marketplace that provides analytics tools, data models and reports, and application program interfaces (APIs). Through this program, banks can achieve enhanced productivity, lower compliance costs, a reduced risk profile, as well as a customizable data structure.

Microsoft’s cloud platform, Azure, has partnered with Bank of America Merrill Lynch to develop blockchain technology. It has also partnered with Cross River, a bank that has pitched head-on into full-blown digitization. The Temenosplatform on Azure offers cloud banking capabilities to companies that would never have used them before. Azure is also opening up new data centers in the UK to target the financial service markets there.

Further, the cloud can be extremely helpful when it comes to the adoption of mobile banking – especially beyond simple withdrawals and deposits. Mobile lending is on the rise among small businesses, with a more than 360% increase in the number of small or medium business loans accessed via mobile device between April 2014 and February 2018. Over the next five years, 30% of traditional corporate banking revenues could be accessible solely through digital channels.

In China, Ping An Group’s OneConnect subsidiary has sold cloud banking products to more than 460 banks in China over the past four years, building everything from mobile banking applications to credit scoring for loans and financial products as well as platforms for interbank transactions around the banks’ core systems by using blockchain technology. The model for the company has been likened to the back-end technology services that Amazon Web Services, or AWS, has supplied to tech start-ups across the world.

The Spanish bank Bankinter is using AWS to run its credit simulations and has managed to reduce the run time of these simulations from 23 hours to 20 minutes. The company is also working with Singapore’s DBS bank to integrate the cloud as part of a S$20 million investment. DBS intends to move up to 50% of its computer workload to the cloud by 2018 to support its digital transformation strategy. The Monetary Authority of Singapore (MAS) is also working toward the advent of distributed ledger technology (DLT), blockchain being the most popular breed. MAS is currently in the midst of Project UBIN, an initiative to bring blockchain to international payments throughout Southeast Asia. DLT innovation in itself is partially because of the cloud. Without the cloud DLT’s experiment would be prohibitively expensive and require too many physical resources.

The cloud promises to streamline the digitalization of banking by removing huge fixed costs associated with data storage. We are only at the start of this transformative change to the industry as just 17% of retail banks rated their digital transformation strategies as “optimal.” Most said they were merely at the beginning or median stages of their digital transformation processes. With the recent increase in number of projects, as well as increased efficiency in the process, cloud services in the financial industry will benefit both the providers and recipients of cloud technology.

Investors can gain exposure to cloud computing via the Cloud Computing ETF (SKYY). MRP declared Financials and regional banks a long theme on December 23, 2016. Since then, the Financials ETF (XLF) and Regional Banking ETF (KRE) have generated a return of about 15% and 5%, respectively, against the S&P 500’s 15% gain.

Cloud Computing (SKYY) vs Financials (XLF) vs Regional Banks (KRE) S&P 500

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