Until recently, many regional banks have had little incentive and even less ability to pursue digital transformation. Now, as increasing competition and COVID-19 challenges raise the stakes, cloud technology and strategic partnerships are enabling these banks’ IT organizations to find a way to respond, recover, and thrive.

Regional banks are in a bind. Situated on the financial services spectrum between large national banks at one end and community banks and local credit unions at the other, this critical niche has generally thrived over the past few decades. Today, it faces a new set of technology and economic challenges.

These midsized banks have historically lacked the scale to make the technology investments that would allow them to provide the advanced services of their national counterparts, such as best-in-class mobile apps and integrated back-office digital operations. The arrival of COVID-19, meanwhile, has further complicated an already competitive landscape, bringing reduced branch traffic and a massive customer migration to digital platforms. Compounded by long-term low interest rates and looming credit quality deterioration, the resulting challenges will likely make it increasingly difficult for regional banks to meet changing customer needs and shareholder revenue expectations.

It’s become clear that many regional banks need new ways to serve their customers. Achieving that goal often requires developing fresh ideas and approaches in the infrastructure team and recalibrating resources, expenses, and security to adjust to the new norm. Increasingly, such efforts depend on embracing the cloud and forging strategic partnerships to help enable the transformation.

The Benefits of Cloud

With no catalyst for change until recently, many regional banks have, in many ways, remained frozen in time when it comes to technology and have not meaningfully started down the cloud adoption path that more and more rely on. Now commercial and consumer customers are beginning to demand that regional banks modernize digital capabilities, and the result could accelerate critical cloud transformation plans by several years.

One of the biggest benefits of cloud for regional banks is the opportunity for their CIOs to fundamentally reinvent the technology environment they run while at the same time redefining their role within the C-suite. By nature, cloud environments can be architecturally resilient, well instrumented, automated, and highly responsive, bringing a new level of maturity to the IT organization. That, in turn, elevates the role of the CIO from one constrained by the limits of technology and staffing needs to one enabled by the technology to compel the business forward. With its ready-to-use compute and storage capacity, prebuilt services, utility pricing models, vibrant ecosystem, and geographic diversity, cloud enables IT organizations to rapidly unleash new business value by bringing new channel capabilities, servicing models, and revenue-generating products to market significantly faster.

Meanwhile, increased developer productivity is coupled with a decrease in time spent providing and managing legacy technology infrastructure, potentially optimizing the bank’s cost base and reducing capital expenditure. This can free up funds for investments in new services and help shift the regional bank’s “run versus change” investment ratio toward transformational initiatives.

Finally, cloud can provide the security and resilience for data and services that are critical to managing reputational risk as well as helping banks meet legal and regulatory compliance requirements. Precertified solutions, automated control processes, security releases and updates, encryption, and the proactive threat detection delivered by many cloud providers can help to ensure the needed levels of cybersecurity and regulatory compliance.

The Role of Partnerships

Talent and funding, of course, are another matter altogether. Historically, CIOs at regional banks had to have the talent to conceive and design solutions and then find funding for those solutions before inviting product and service providers to assemble them. And once service providers were engaged, there was usually an asymmetric risk model whereby banks assumed all the risk associated with getting things done and providers received all the benefits by getting paid regardless.

Today, many regional banks hoping to drive meaningful change through cloud transformation need to revisit and reconsider traditional delivery and funding models and look for partners who can put skin in the game. In many cases, this has led to the emergence of a dynamic, sustainable partnership ecosystem in which partners help fund this change opportunity and make upfront investments that give them a stake in the transformation. For instance, partners may fund the migration of workloads to cloud and get paid on the back end for providing cloud-managed services for a set period of time. Such deals leverage the unique strengths of each partner and tap the full suite of their capabilities—and often their balance sheets as well.

With partners that can deliver core IT services, address regulatory and audit matters, and meet customer service expectations, regional banks are driving the necessary transformation to respond to changing customer expectations and market dynamics. Along the way, CIOs can show their C-suite counterparts and boards a win-win proposition: Pay less upfront and over time for more advanced capabilities, heightened agility, and the ability to scale as needed.


To stay competitive in today’s environment, regional banks have little choice but to modernize and transform. By leveraging the right technology and ecosystem partnerships, CIOs at these banks can improve core services, free up talent and capital, and help drive their organizations into the future.

—by Chris Thomas and Richard Walker, principals, Deloitte Consulting LLP                      

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