Telco opportunity: Banking industry faces creative destruction from the cloud

Written by
December 1, 2011

As the cloud envelopes everything, Gartner foresees massive change in the banking sector. Telcos need to be nimble to avoid collateral damage and take advantage of the disruption

Just like the communications industry, the financial services (FS) industry is witnessing a rapid shift in attitude, according to a new Gartner survey of global banking CIOs. About 39 percent of those surveyed expect that more than half of all their transactions will be supported via cloud infrastructure and software as a service (SaaS) by 2015.

The survey is part of the Gartner Executive Programs annual CIO survey. In the fourth quarter of 2010, a total of 2,014 CIOs responded, representing $160 billion in CIO IT budgets and covering 38 industries in 50 countries.

According to Peter Redshaw, managing vice president at Gartner, cloud banking has the ability to drive ‘creative destruction’ and allow banks to try completely new services and processes. Cloud services can displace the existing and dominant process for design, distribution and transactions in a disruptive way and support a robust growth strategy through increased flexibility and agility.

Telcos need to watch these developments as banks replace people with algorithmic operations (AOs) to run processes and make decisions. Increasingly, a bank’s intellectual property resides in these algorithms and the value of people is not in running operations but in improving the AOs.

As telcos are increasingly responsible for parts of the financial delivery networks that used to be the domain of banks, developments that provide creative destruction, even moderate unrest, need to be monitored closely. The burden of banking security is moving to the device and the telco’s network – and carriers at least so far are coming up short.

As new banks are launched for the first time in a decade, telcos and banks should follow fundamental advice about how to roll out new banking services. One approach advises banks planning new services to consider a triple play approach – implementing downloadable apps, mobile browsers, and SMS-based services, all with the support of operator partners. Above all, banks, and telcos, must test, test and retest before being too innovative, let alone creatively destructive, with customers’ money.