It is an exciting time for financial technology in Asia. A 2014 McKinsey study reported that the use of mobile and Internet channels for banking services among Asian consumers have increased by more than 35% from 2011 to 2014. The introduction of technologies in the financial industry is driving two kinds of forces – a growing desire among consumers for increased services available on their digital properties and the revolution of traditional banking processes – a phenomenon known as “digital disruption”.
In his last budget speech, Hong Kong’s Financial Secretary John Tsang shared that as a global hub for finance that is well-equipped with technological expertise, Hong Kong “is an ideal place” for Fintech development. Fintech opens up interesting opportunities but also brings about challenges for the finance industry.
Digital disruption occurs when digital technologies redefine the value proposition of a company and the services it provides. It introduces opportunities for new players to challenge the more established ones. Based on a report by Telstra, 58% of Hong Kong consumers consider personalized digital banking concepts as the most appealing form of banking to them. The rise of internet-connected devices also brings about customer expectations of innovative mobile banking services supported by channels that can be accessed securely and all the time.
Banking processes are no longer the same with digital disruption at play. Citi, HSBC and Standard Chartered are some examples of banks which are growing their digital banking departments in Singapore and Hong Kong. The emergence of new technologies has also caused old banking products to be phased out in the financial industry.
To cope with challenges brought about by digital disruption, banks with cloud computing systems are looking to hybrid cloud systems to improve their agility and resiliency. According to research done by Forrester, banks in mature markets such as Australia, Hong Kong and Singapore are seeking to improve the customer experience by revitalizing their data centers through the use of a combination of hybrid cloud approaches.
Research by Telstra revealed that the trend for Hong Kong companies in 2015 seems to be moving in the direction of a hybrid cloud approach. Majority of respondents highlighted that a single private cloud model may not be adequate in supporting the complexity of processes, services and workloads for large corporations.
The movement to a hybrid cloud system provides organizations with the ability to handle some of its operations within the organization while outsourcing the rest to a cloud provider. Since the nature of a hybrid cloud infrastructure provides the flexibility of scaling up storage and processing capabilities, banks adopting this system will be more primed to match rapid changes in economic growth and sudden spikes in customer demand.
As financial institutions rise to adopt hybrid cloud systems to handle the new challenges brought about by digital disruption, an important factor to consider is whether the cloud service provider is the right fit for the organization’s needs. In the case of Hong Kong, the data user has the responsibility to comply with the Personal Data (Privacy) Ordinance (the “PDPO”), regardless of any action or inaction taken by the data processor.
In view of this regulation, data users should be very careful when choosing a cloud service provider. Apart from ensuring that the cloud service provider has a robust architecture and reliable facilities to support its requirements, strict obligations and contractual agreements need to be imposed on them with regards to processing personal data.
To cope with digital disruption, a hybrid cloud approach would be an ideal platform for banks. By implementing a hybrid cloud system and leveraging on the expertise of a state-of-the-art data center provider, banks can create an infrastructure that gives it the confidence to tap on future growth opportunities in the finance sector.