Voice communication has typically been one of the biggest investments and expenses for large banks, costing firms millions in capex for legacy telephony hardware and hundreds of thousands in recurring costs for lines.
In addition to the high cost, the length of contracts and the fact that these outdated solutions are deeply ingrained in the firm’s processes contribute to the reluctance of firms to transition to updated technology.
A recent article in Business Insider detailed that banks are cutting jobs to compensate for rising costs and lower return on equity; however, research by McKinsey suggests that reducing headcount and scaling back operations doesn’t have the desired impact on costs.
“Even if a bank cuts jobs, there are some costs related to those roles that it can’t get rid of,” writes Matt Turner, Deputy Editor of Business Insider. “So all it has really done is kill off a source of revenue and shift the burden of covering expenses onto a smaller group of people.”
The secret to increasing value, McKinsey’s report suggests, lies in technology.
As we covered at our Fintech and the Cloud roundtable earlier this year, many banks and financial institutions tend to lag behind when it comes to adopting modern technology due to unique concerns with security and compliance. However as technological advances are made in cloud security and encryption, audio quality, and the ability to interface with other services, it makes less and less sense for firms to be chained to outdated hardware.
Michael Spencer, founder and chief executive of ICAP, recently said in an article for Financial News, “The financial services industry has often been slow to adopt technology but we will see a tectonic change over the next few years…Technology is getting cheaper and the really sophisticated traders are getting younger, smarter and savvier…Traders of the future will expect more freedom in how they work, where they work and what they wear to work. It will be the firms that embrace this that win.”
Digitization could deliver 20-30% improvement in profit, equaling 2-3 percentage points in return on equity over the next 3 years. McKinsey cites that increased electronic trading, electronic onboarding of clients, automation in back-office functions, big-data analytics, and the use of public cloud infrastructure are all potential advancements that will deliver more value to a firm.
Cloud9, for example, utilizes the Amazon Web Services cloud infrastructure to deliver a lower cost, subscription-based service for users, allowing them to eliminate the cost of lines and hardware. Firms get a better, more reliable service without having to scale back operations or make dramatic staff cuts. Not only are cloud solutions more affordable, but updated technologies also give financial firms the flexibility to adapt to changing regulations, better reconstruct trades, interface with other applications, and overall, conduct business more efficiently.
Spencer went on to say in his article, “Certain providers are already making good strides in financial services and working alongside regulators to ensure the compliance and security needs of institutions are met. Offering cost-efficient and highly secure alternatives to complex and costly legacy infrastructures, we will see financial institutions move away from time-consuming, in-house builds and outsource these services.”
An additional study by McKinsey’s Silicon Valley group showed that, in the general enterprise, benefits to workflow such as rapid implementation and the quality level of cloud platforms are the key drivers of cloud acceptance, often more than cost savings. They predict over a third of companies will use public infrastructure as the primary environment for at least one workload by 2018.
The shift to the cloud is accelerating, and Wall Street firms cannot afford to be left behind. The key to remaining competitive and profitable in today’s market lies in the cost saving, quality, and efficiency benefits of cloud technology.
Learn more about the benefits of Cloud9 for financial firms here.