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Cloud acts as a catalyst to promote competition in
the Banking Industry
Empowering the Tier-2 and Tier-3 banks to create a level playing field
Overview
The adoption of cloud based solutions in the Banking and Financial Industry is
widespread today. As banks are adapting to the changing market and technology
needs, cloud is playing a vital role in providing access to the latest technology.
The banking sector relies heavily on IT. According to Forrester, IT expenditure in
this sector accounts for 7.3% of revenues, which is the highest across all industries.
Banks and financial institutions are burdened with high costs, maintenance of
complicated IT systems, and prolonged configuration and installation periods
which increase the time to market.
With the adoption of Software-as-a-Service (SaaS) model, this burden of IT
hardware, maintenance and development is being reduced. In a SaaS model, the
application is hosted by a cloud provider, and the bank simply subscribes to the
service. This way the banks are able to focus on the customer and the market, while
the IT is outsourced to the cloud provider. Even the tier-2 and tier-3 financial
institutions which cannot heavily invest in IT, now have access to sophisticated IT
systems via cloud.

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Increasing popularity of cloud based solutions in the banking sector
At least 70% of the retail banks globally are considering SaaS as a deployment model.
Source: Ovum, 2014
Earlier, banks and financial institutions looked for IT solutions to make their entire operations lean, streamlined
and automated. Today, as technology is evolving and the customer needs are growing, banks are looking for the
latest IT solutions to help them adapt to the changing environment. Mobile and online banking are two such
examples of services that a customer looks for while selecting a bank, and thus it becomes imperative for banks
to provide these services in order to compete in the market. This makes SaaS an attractive model for small and
medium sized financial institutions that want to access the latest technology. The four major reasons for adopting
cloud based solutions are:
Low Costs
Historically, financial institutions buy/build and
maintain their IT infrastructure, which results in very
high upfront costs. However, with the SaaS model, the
bank does not own the infrastructure; it is the
responsibility of the cloud service provider. This
results in low upfront capital investments, low
hardware costs, and in turn a lower IT staff cost. The
pay-as-you-go SaaS model lets the business pay only
for what they use. Capital expenditure is substituted by
operational expense, and licensing and renewal costs
are kept at a minimum.
Increased scalability and flexibility
The SaaS model offers excellent flexibility and scalability. With the pay-as-you-grow model, the IT capacity can
be scaled up or down as per the business needs; only the subscription needs to be adjusted. Additionally, web-
based applications can be accessed from any location across the globe with internet facility.
With the subscription based model, financial institutions can upgrade to newer technologies and platforms easily
since they no longer own the actual IT infrastructure any more. This helps the banks respond quickly to the
changing market, customer and technology needs.

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Increased efficiency
By using cloud services, the banks and financial institution can focus on improving their business model and
strategy instead of running the IT and internal operations. The responsibility of the upgrade, security, and
maintenance is on the shoulders of the SaaS provider, which allows the bank to focus on their business.
Faster time to market
Be it the new banks that are looking for an IT solution immediately, banks that are expanding to newer
geographies, or banks that want to shift from their existing systems to a more sophisticated one, cloud based
solution enables a faster time to market. Unlike the traditional on premise installations which could take several
weeks to a few months, SaaS applications are pre-installed and can be configured in days and integrated with
bank’s existing offerings.
Cloud is changing the United Kingdom financial landscape
The UK Financial Services industry since a long time had been dominated by the ‘Big 6’, namely, HSBC, Santander,
RBS, Lloyds, Barclays and Nationwide Building society. The ‘Big 6’ have had majority of the market share
including 70% of corporate lending, 55% of consumer credit, and 75% of the mortgage lending. This dominance
of high street financial institutions made it very challenging for smaller players to grow. The limited competition
had a negative impact on the customer service and satisfaction. In an attempt to increase the competition, Bank
of England and Financial Services Authority brought in changes to the banking regulations. The barriers to entry
were lowered for new entrants, and the process of shifting bank accounts from one bank to another was made
faster and smoother. As a result, there has been a spurt of new entrants in United Kingdom.
Tier-2 and Tier-3 Financial Institutions (FIs) penetrate the UK market with the help of cloud solutions
From new players like Savvy Loans Ltd., Hampden Bank, and Civilised Money, to the decades old building
societies like Ipswich building Society, Loughborough Building Society and Dudley Building Society, all are
leveraging cloud solutions. It is helping them to overcome challenges (economies of scale, time to market, IT
operations etc.) and gain a competitive advantage by providing better customer services and differentiated
offerings.
Online lenders
Savvy Loans Ltd. is a new entrant in the UK consumer credit market, and is one of the first online lenders in UK.
It is using a SaaS model to handle the entire loan servicing process.
Savvy is one of the first UK financial institutions offering online, secured lending. With the help of cloud solutions,
it was able to launch fully customizable online offerings in a short span of time. From online loan origination,
data capture, to credit decisions, all can be done faster and smoother.
By passing on the cost savings that SaaS has brought about to provide affordable consumer loans at an aggressive
and competitive interest rate, Savvy is able to challenge the high streets financial institutions. It is also an
alternative to the high-interest pay-day lending in United Kingdom. Savvy is entirely focusing on its business
“SaaS Solution enabled us to take our offering to market quickly with low capital
expenditure and to provide a better service to our customers through quick turn-
around on the loan decisioning process. In turn this allows us to support a higher
volume of tailored loans at lower interest rates and with longer payment terms.”
- Alexander Chagoubatov, Managing Director at Savvy Loans Ltd.
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growth, market penetration strategy and customer service with the assurance that the IT operations are handled
by sophisticated and trusted IT systems.
The benefits of the SaaS model is enjoyed not only by Savvy but is also transferred to the end customer and the
market as a whole.
Credit Unions
My Community, an online credit union in UK has opted for a SaaS model.
My Community bank was launched in 2013. With the
help of cloud technologies it could go live in a very
short span of time. The SaaS model also allowed it to
purchase only the product offerings and modules that
were needed instead of a heavy investment in
software licenses. SaaS model has benefitted My
Community, and it is able to compete with the payday
lenders by offering competitively priced loans and
helping the borrowers escape the payday lender
traps.
Building Societies
Dudley, Loughborough and Ipswich Building Society are examples of older institutions leveraging cloud
services to gain a competitive advantage in the UK market.
“In this competitive market, it was vital that our core technology platform supported
our aggressive timeline for launching My Community Bank, and had the flexibility to
allow us to evolve our product offerings easily in the future.”
- Mohsin Mehdi, Chief Executive of My Community Bank

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The Building Societies have been providing mortgages and savings account in United Kingdom. Together they
have 30 branches. With the new SaaS model, they expect low costs, support for branch operations, and data
center backup and recovery.
The Building societies are taking a customer centric approach. Their focus is now on improving their offerings,
providing faster service, and keeping customer satisfaction high.
Other building societies too are on the road to switching to cloud solutions. For example, Yorkshire Building
Society will shift their core mortgage and savings application to the cloud. Leeds Building Society too is on a
similar path. Business growth is now becoming the focus for these institutions.
Cloud is transforming the United Kingdom banking sector like never before. For some banks and financial
institutions, cloud is a critical criterion for selecting a software solution. The new entrants, tier-2 and tier-3 FIs
are penetrating the market with more aggression, and end customers are getting benefited due to this increase
in competition.
Cloud technology is reshaping the banking landscape across the globe
Across the globe, the tier-2 and tier-3 FIs are turning to cloud solutions.
Philippines is witnessing a major change in the regulatory framework of the banking sector to such an extent
that banks are now allowed to store their customer data in private clouds even outside the country. The BSP
Deputy Governor Nestor A. Espenilla Jr. quotes, “For smaller banks, cloud is a cost-effective way for them to store
and manage their data without having to invest in infrastructure. Cloud computing can increase the
competitiveness of our smaller banks.”
In India, there is a demand for cloud from the smaller Non-Banking Financial Companies. The Indian Banks
Community Clouds (IBCC) has been set up just to monitor and promote cloud in the banking and financial sector.
In Japan, the Shinkin Banks, which are the small sized banks and credit unions, are looking out for readily
available cloud solutions that can be deployed in a short span of time. Shinkin Banks are concerned over high
infrastructure maintenance costs which seem to have become higher than the applications. Japanese cloud
market is predicted to reach 2 trillion yen by 2017.
Africa has over 2000 small to medium banks and more than double the number of microfinance companies.
These FIs cannot afford sophisticated software solutions, and are looking for a SaaS model. Many institutions
have recently switched to cloud solutions.
“The managed service approach is ideally suited to our needs and gives us access to
best of breed solutions for account management and compliance at a cost effective
price. The cloud solution ensures we can deliver a robust, secure service that enables
us to deliver excellent customer service to our customers.”
- Jeremy Wood, CEO at Dudley Building Society
“Our priority is to provide top-quality service to our customers, and this new
approach will allow us to focus on the business while relying on the cloud solution to
deal with the management of our core IT system,”
- Paul Winter, chief executive at Ipswich Building
Society

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Conclusion
Increasing number of FIs are adopting cloud solutions to access cutting edge technologies within limited budgets.
Tier-2 and tier-3 banks and financial institutions are able to overcome various challenges and compete with high
street financial institutions. With cloud based technologies, banks are now focusing on what always should have
been the focus: banking services, adapting to market needs, and providing excellent customer service. Silently,
but surely, the cloud technology is revolutionizing the banking industry.

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About Authors
Arup Das
Lending Product Head (P&L Management), Nucleus Software
Arup is the Vice President and Lending Product Head (P&L
Management) at Nucleus Software where he is responsible to lead the
flagship product to the next level of global leadership. Before joining
Nucleus, he has played various roles in strategy and product
management with leading companies like CISCO, IPValue and Mphasis.
Author e-mail id: arup.das@nucleussoftware.com
Vaibhav Gupta
Lending Product Manager, Nucleus Software
Vaibhav is a Product Manager at Nucleus Software where he is
responsible for managing P&L for FinnOne Neo for Cloud and Middle
East. He has previously worked on Cisco Solutions and was responsible
for product strategy, go-to-market initiatives and licensing operations
within the Unified Communications offerings.
Author e-mail id: vaibhav.gupta@nucleussoftware.com
Swati Meena
Lending Product Analyst, Nucleus Software
Swati is a Product Analyst at Nucleus Software where she is responsible
for managing P&L for FinnOne Neo for Cloud and Middle East. She is a
PGDM (MBA) holder from Indian Institute of Management (IIM)
Lucknow, specializing in Marketing & Strategy. Previously, she has
interned at Nucleus Software.
Author e-mail id: swati.meena@nucleussoftware.com