With the competitive and regulatory ground rapidly shifting under banks' feet these days, what is the path forward? We believe that cloud computing, if leveraged properly, will play a major role in helping banks survive the next decade.

Cloud computing, in our view, is an operating model, not a specific technology. Its advantages are many: low cost, high scalability, variable pricing tied directly to use, and unlimited processing power and storage.

Already, some newer banking entrants - unburdened by complex and costly legacy systems - are using cloud to support core banking applications. However, we don't expect to see a wholesale mass migration to public cloud services across the entire banking industry. Instead, banks' adoption of cloud will be highly selective and targeted.

On the consumer side, cloud computing is already disrupting traditional banking by transforming how consumers research, learn about and buy financial products and manage their personal finances in the era of social media. Already, a new generation of cloud-based online personal financial management applications - mint.com, Geezeo and Simple to name a few - are gaining traction among customers.

By offering disaggregated banking services, and moving information, advice and money in a faster, more responsive and more personalized way, these new entrants aim to become the "front office" for customers' banking needs, leveraging the social and mobile experiences that consumers find so compelling.

In short, customers can bypass banks and go directly to cloud-based services. For banks, the complication is that "talking at" customers is now a thing of the past. Instead of being told what is happening, customers want a personalized dialogue.

Banks that fail to reinvent their services to reflect these changes risk seeing their customer relationships being hijacked by these new entrants. This would ultimately relegate banks to a back-office utility, running bank accounts behind these third-party cloud-based front-ends, to serve merely as regulatory gatekeepers for anti-money laundering and similar activities.

To avoid this fate, banks must invest in capabilities around social media, analytics, and targeted product and service bundling. Few would disagree that core banking products such as checking accounts have essentially become commodities. The real differentiation lies in pricing and bundling.

Some banks might locate their product engine in a cloud, while retaining unique and sophisticated bundling capability that combines cloud-based components in groupings relevant to targeted customers. Bundling opportunities can even go beyond financial products - banks in France, for example, are bundling personal home care services such as gardening.

Further opportunities exist when providing customers with digital storage "safes" which store sensitive personal data in the cloud, bundled with services such as tax, financial and wealth management advice. Cloud-enabled digital wallets carrying a range of different services on smart phones are another high potential area, although this will require agreements with telcos over customer ownership. (In the absence of such agreements, telcos might start providing these services themselves - without the banks.)

There are other ways banks can leverage the cloud. In a similar way to telcos sharing network infrastructure, banks will start to collaborate to pool non-differentiated activities into joint ventures using "private clouds" within a closed group of banks. These joint ventures could provide shared services that interact with customers in more engaging ways while simultaneously freeing banks from the burden of routine transactions. For example, check processing could be a good candidate for cloud adoption, enabling banks to scale down cost effectively as transaction volumes decline.

Joint ventures could also be suited to areas that are integral to core banking but not differentiators with customers, such as security. By turning security into a service that is shared with other banks and operated via a joint venture private cloud, banks could stop duplicating investment, industrialize their security processes for economies of scale, gain new service options and have immediate access to the latest applications. These collaborative private clouds could even be "hybrids" powered by a third-party.

Banks' growing use of cloud computing to enable dynamic bundling will trigger an industry-wide drive to bring third-party financial and non-financial products together in the cloud. A bank might operate as an integrator and aggregator of products using its cloud-based bundling capability as the "glue."

In this environment, banks will compete either by being financial services ecosystem leaders, in which case they use their technology as a platform for other companies; or as participants, a role that may be most appropriate for smaller or niche players. To join this ecosystem, third-party specialists - from charge cards to concierge services to entertainment and sports - will migrate their offerings to the cloud.

The overarching and most disruptive impact of cloud computing will be how it redefines the relationship between consumers and providers of banking services. Cloud computing will make services more accessible and more personalized to consumers' needs and lifestyle. It remains to be seen whether banks or non-banking entrants will lead this change.


Emmanuel Sardet is a senior executive in Accenture's Financial Services Group.