The future of banking is undoubtedly on the cloud. And as banks move to transform market strategies in a bid to engage better with the modern customer, they are looking to leverage SaaS models to deliver better customer experience, at lower costs. Spending on public cloud is estimated by 20.7 percent in 2023, to USD 591.8 billion from USD 490.3 billion in 2022.1 The first phase of digital transformation within the banking sector is almost completed. Now, most banks are looking to modernize their business strategies by leveraging AI, orchestrating APIs, and embedded finance models to reach customers through new channels and address their requirements proactively. SaaS can power the next phase of banking innovation by ensuring greater agility, scalability, regulatory compliance and more.
Why do banks need to change their business strategies in the first place? After all, the sector has been one of the most stable pillars of global economy since time immemorial. But the business landscape today is a far cry from what it used to be. To put it simply, the sector has experienced rapid uberization with technology changing the way people banked. As more millennials and Gen X enter the formal banking economy, the demand for digital channels will grow, as will the demand for embedded banking and innovations like BNPL. In the USA, 41 percent of customers are now managing their banking engagement on digital channels exclusively.2 These modern customers want to be able to avail of banking services at any point of time, on any channel even if it isn’t a banking one. They want to be in greater control of their data and finances and expect greater personalization in their engagement with the bank. At this juncture, banks must be able to use data intelligently for insights on customer behavior and trends that will shape their strategy. And for this, they need to leverage AI and ML, which their legacy systems cannot support. SaaS banking platforms provide the agility and scalability to implement AI-based business strategies.
Cloud-native fintechs, neo banks, and tech giants foraying into the sector are more than well equipped to provide them with the on-demand, seamless, and easy experience customers are looking for. And today there is a strong regulatory push for open banking with the EU and UK mandatorily requiring banks to share customer data with third party organizations. This is an opportunity for neo banks and fintechs to expand their footprint across the banking sector, eating into the bank’s share of wallet and customers. But all is not lost for traditional banks, as they still enjoy significant customer trust which is a key asset for them in the new open banking economy. Customers are more likely to trust an open banking ecosystem orchestrated by a traditional bank than a neo bank or a fintech. This is an opportunity that banks must capitalize on to beat competition and grow their customer base.
SaaS models hold the key to success in an open, personalized, and on-demand banking economy. Several large banks are now exploring open banking, embedded banking, and new trends such as BNPL. And even the World Economic Forum is encouraging banks to accelerate SaaS platform adoption and innovation to extend affordable and accessible banking services to more people across the globe amidst fears of an economic downturn.3 APIs hold the key to a thriving open banking economy. By moving to SaaS platforms banks can ensure effective sharing and integration of APIs to lead customer-centric innovation across the ecosystem. Banks are also under increasing regulatory pressure on matters pertaining to data privacy, data protection and ESG. SaaS-based banking solutions can help banks manage compliance more effectively and help them meet ESG goals as SaaS can significantly reduce an organization’s carbon footprint.
SaaS model adoption offers customers the flexibility, control, and personalization they expect while also orchestrating an open banking economy. It offers the scalability and agility that banks need to transform themselves to meet the demands of the modern marketplace. And this future can only be achieved with a robust SaaS strategy.
