Why 2023 will see more cloud adoption in Financial Services, not less
By Venkatesh Kumar, Head of Cloud and IT Infrastructure Services, Europe, at LTIMindtree
In July, the Bank of International Settlements (BIS) issued a warning to the financial sector about its growing dependency on cloud computing. BIS argued that a growing reliance among financial institutions on cloud computing supplied by a handful of companies could have “systemic implications for the financial system”. Additional doomsayers warn of increasing cyber risks posed by digitisation.
But cloud adoption in financial services will continue to grow in 2023, and according to a recent survey by McKinsey, more than half of the survey respondents, 54% said they expect to shift at least half of their workloads to the public cloud over the next five years. This is because the innovation on offer is far too great to ignore and because even now, implementing cloud technologies is safer, can significantly improve agility and outweigh any perceived (manageable) risk at the level of individual financial institutions, compared to hosting on-premise entirely. Broadly, the key benefits of the cloud can be bucketed into the following categories:
Cost, efficiency and agility
One of the main drivers of cloud adoption in financial services continues to be the potential for cost savings. With the cloud, financial institutions can reduce their infrastructure costs by paying for only the resources they use, rather than maintaining and upgrading their own servers and data centres. The pay-as-you-use model becomes particularly important in a volatile macroeconomic environment, but for smaller organisations, it also reduces a significant barrier if they don’t have the resources to invest in their own infrastructure.
The cloud is already helping financial institutions drive significant efficiencies. Migrations to cloud environments forced organisations to re-evaluate their legacy platforms and find more streamlined ways of hosting and processing data. The breadth of automation on offer also compounds these efficiencies, and we are now seeing financial institutions that are able to process transactions more quickly and accurately and which can easily access and analyse data to make better-informed decisions.
While cost savings and efficiencies are important drivers, the next phase of cloud adoption will be centred on driving digital transformation by leveraging modern IT architectures such as Microservices, AI and Blockchain. These new technologies will enable financial services organisations to be more agile and responsive to changing market conditions and growing needs. Cloud is key to leveraging these technologies and enabling financial institutions to roll out new products and services quickly, as well as to test and iterate on new ideas – at a fraction of the cost in traditional environments.
Despite initial concerns, the cloud has proven to be a secure environment for financial services companies. Leading cloud providers have invested heavily in security measures, including advanced encryption technologies and robust physical security measures at their data centres. In addition, the cloud allows for better control and monitoring of security threats, as well as easier compliance with regulations such as the Payment Card Industry Data Security Standard (PCI DSS), for example.
Given their built-in and multiple levels of redundancy – particularly as organisations often build additional measures on top of this environment – it really is naive to consider each cloud provider as a single point of failure.
But the cloud also facilitates greater collaboration within financial services organisations, as well as with their external partners. Open banking principles, for example, note that innovation is achieved through better data sharing. The cloud makes it easier for financial services organisations to share information and collaborate more easily with their customers, suppliers and other stakeholders – to the benefit of all involved.
The risks, however, shouldn’t go unchecked
Security and vendor lock-in are reasonable concerns, but not concerns that should stifle cloud adoption.
In 2023, we’ll see even more organisations move towards hybrid-cloud or multi-cloud architectures, to take advantage of the benefits of the cloud while still maintaining some control over their own infrastructure. According to Virtana’s latest research report, The State of Multi-Cloud Management, “82% of organisations are currently leveraging a multi-cloud strategy and 78% of organisations have workloads deployed in more than three public clouds”. In financial services, the approach means organisations can keep certain data or applications on-premises for security or regulatory reasons, for example, while using the cloud for other purposes.
And regulators and governments can also play a key role in setting and enforcing standards for cloud security and data protection. We have seen a number of disparate pieces of guidance and data policy, but with more standardisation, guidance and support, we can ensure that the move to the cloud in financial services remains as smooth and secure as possible.
The benefits far outweigh the risks
The cloud offers cost savings, improved security, enhanced agility, increased efficiency, greater collaboration, support for remote work and the ability to facilitate digital transformation. And if organisations continue to pursue hybrid and multi-cloud architectures to address concerns around security and resilience, we’re set to see rapid cloud adoption in 2023 and beyond, not less.
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