Cloud computing has been gaining considerable traction over the last couple of years. According to the research company, Gartner, 28% of spending in key IT segments – estimated at $1.3 trillion – will be spent on cloud computing by 2022. This represents a considerable increase on 19% spent in 2018.
While historically banking has lagged other sectors with respect to adopting cloud technologies, it has actually now become one of the largest spenders on public cloud services. This reflects how cloud computing has become a mature, tried-and-tested model for businesses, even in industries with high regulatory and compliance demands.
Against the backdrop of continued pressure on IT budgets, the move to as-a-service models and the promise of reducing costs by 30-40% is something every financial organization is looking at. Financial services CIOs recognize the need to bring their budgets and spending in line with reality and achieve more with less. For example, the number of financial services companies using Amazon Web Services (AWS) continues to grow, from Capital One using AWS for their mobile banking application, to Singapore’s DBS Bank.
According to the Deloitte Global 2018 CIO Survey, most organizations are using the cloud for non mission-critical applications and infrastructure, as well as those areas that require 24/7 support. In the past this has also been very true for financial organizations, that maintained their use of the cloud on non-critical parts of their business. This however is changing, and changing fast.
As FIS, one of the world’s largest providers of financial technology, has pointed out, it is now time for banks to place their core in the cloud. The technology is mature. Cloud providers are now able to overcome concerns about security and regulation. There’s an excellent anecdote reported by the financial expert Chris Skinner, on his blog, about an Australian bank’s CIO who wanted to move their back-office infrastructure to the cloud. The board declined, saying no, due to regulatory concerns. At the next meeting six months later, the CIO make the same suggestion – standing alongside the central banking authority who said they had no problem with it. Regulators recognize that the security offered by many cloud providers is greater than that which a bank could offer on its own. The bank went on to save 35% of its operational costs.
This is not to say that adopting cloud is not without its challenges. There are strident (and increasingly so) data regulations – whether its the EU’s GDPR or PCI data security standards, or one of any of countless regulatory environments across the world. However, cloud computing is also helping here – the emergence of RegTech is helping financial firms deal with the increasing complexity of different regulatory and compliance necessities. Meanwhile, instead of prohibiting the use of the cloud, regulators are looking to ensure organizations have mitigation plans and strong governance processes in place.
Perhaps one of the most overlooked parts in this transition, is the shift in mindset which is required. And for banks and financial services companies this shouldn’t be underestimated. Moving to the cloud is a part of the shift of moving away from building and owning everything. Use of the cloud and APIs means bringing together different technologies to offer customers a compelling set of services to meet their needs in the digital world. This means shifting to building the equivalent of a banking cloud platform, using the approach of a typical tech company, rather than that of a traditional bank, which ran its own IT operations.
Due to the security and regulatory constraints that financial services firms operate in, the majority of firms are opting for a multi-cloud or hybrid approach. Research by the 451 Group in 2018 found that about 60% of financial services businesses expect to use a mixture of on-premise and externally hosted environments. Such an approach helps bring the benefits of business agility and cost reduction that organizations expect from the cloud, whilst also overcoming security and compliance concerns. However, it is nonetheless a complex undertaking – requiring firms to ensure they have the skills and capabilities to integrate and manage different cloud services.
The world is changing and organizations need to change with it. Cloud computing needs to be a weapon in every organizations’ armoury to handle these changes and become a digital organization. Reflective of this, Belatrix has been taking a “cloud-first” approach in discussions with our customers and prospects, where the cloud is at the forefront of every conversation. We’ve just published an article that explains what we mean by cloud-first and exploring some of the innovations we’re seeing in the cloud – check it out here.
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