By Sumeet Sabharwal
A number of factors are creating a colossal shift in the financial services industry. The emergence and growth of new digital technologies, constantly evolving customer behaviors, and new regulatory pressures are just the tip of the iceberg.
Enter the cloud. The cloud provides financial institutions with the scale, flexibility, and risk control that not only enable them to tackle the copious changes taking place now, but it also provides an agile IT infrastructure that will enable them to rapidly evolve as the “finserv revolution” pushes on.
Despite concerns about meeting the sector’s high security and compliance standards, the benefits of the cloud are being realized and adoption is on the rise. Public cloud investments increased 32% in 2015, and the public cloud is set to become the industry’s dominant infrastructure model by 2020. Additionally, as cloud computing becomes more prevalent throughout the financial sector, a mixed strategy of leveraging both private and public clouds is emerging as the norm for most financial organizations.
Expect a staggered approach.
The financial sector is also often known for its reliance on mission-critical legacy applications. Cloud computing providers are therefore proving to be a valuable resource for helping with the difficult task of migrating these legacy applications.
More often than not, financial companies start with a conservative approach to the cloud, mixing on-premises and private cloud services, before eventually migrating suitable parts of their infrastructure to the public cloud. As one of the more heavily regulated industries, there’s good reason for this. By their nature, financial service firms deal with the sensitive information of both individuals and businesses—but security perceptions of the public cloud are shifting.
While progress has been made across the industry in a number of areas to improve cybersecurity, it still remains the top concern for a majority of financial institutions. According to a poll conducted by PricewaterhouseCoopers, 79% of financial CEOs were concerned or extremely concerned about cyber threats impacting their business, more than any other sector.
Encryption and masking offerings are now readily available as cloud security options. Such options can help address many of the sector’s concerns. However, not all databases are cloud-friendly in licensing terms, and for heavily regulated industries, it is often about working with cloud providers to find and tailor the right solution to meet industry requirements—whether that is for a private, public, or hybrid cloud implementation. For effective management of a financial service cloud infrastructure, there should also be clear areas of responsibility set out between internal IT teams and third-party cloud providers.
In spite of the security and regulatory concerns around financial services and cloud computing, certain online services have already become the norm. Functionalities such as banking online and through phone apps are now seen as basic, indicating that we may already have more confidence in cloud computing for our financials than we realize.
The money’s in the data.
Financial institutions are investing in big data to support critical business activities, including risk management, regulatory compliance, and improving customer experience. In fact, firms in the industry spent $6.4 billion on data-related programs in 2015, and such spending is expected to increase at an annual rate of 26% from now through 2019. The exchange of information is crucial for the financial industry, and it has become a point of success—or failure—for these firms. Transactions in the financial sector are time-sensitive and, if delayed, can mean the difference between monetary gain and monetary loss. Agility, reach, and time-to-deployment are therefore key motivators for the adoption of cloud services.
Financial firms typically have high storage demands due to the large amount of transactional, personal, and complex data they require to operate. The faster they are able to process and analyze these large quantities of data, the faster they can understand and predict customer behavior and needs. This means they can create better, more timely services for customers. Due to its natural elasticity, scalability, and flexibility, cloud computing is an ideal platform to both store these large volumes of data, as well as to develop and test new analytics applications.
Banking on the cloud.
It’s an exciting time in the financial services industry, and one that is seeing a great deal of disruptive innovation. While the approach to cloud migration has been relatively conservative, it’s clear that firms are embracing the cloud to address a number of technology and process management challenges as well as to better meet changing customer demands.
Sumeet Sabharwal is group vice president and general manager of NaviSite, an international provider of enterprise-class, managed hosting, managed applications, and cloud services. Email: email@example.com.
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