Banks and financial institutions have been hesitant to adopt public cloud technology due to a fear of losing control. What are the psychological barriers facing financial services executives and how may they be overcome?
By Neil Vernon, CTO, Gresham Technologies
Accelerated by the global pandemic, the financial services industry is undergoing a period of intense technological transformation. The impact of Covid-19 is putting incumbent banks and financial institutions under cost, profitability, and operational stresses; regulatory requirements are growing in volume and complexity; and legacy systems are increasingly putting businesses at risk of service failure, loss events, and reputational damage.
In this environment, there’s no doubt that the future of financial services is in the cloud.
Its potential to deliver greater agility, cost effectiveness, efficiency, scalability, and speed to market provides new opportunities for growth and innovation. What’s more, a cloud-first approach offers firms the ability to better control their data and remain connected, freeing up highly stretched resources to focus on other business objectives. Migrating to the public cloud can play a critical role in strengthening operational resilience, too. In the face of increasingly high customer standards and, in the UK, new rules from the FCA coming into effect from March 2022, IT and system failures will simply not be tolerated in future.
So why are we still seeing a hesitancy towards cloud adoption among senior financial services executives?
Outsourcing functionality, not control
For the most part, it is the fear of losing control. Regulatory changes are increasing the pressure to meet a greater number of more complex requirements. In line with that, the risk of more severe non-compliance and the consequences that follow are also increasing. Exacerbating this problem is a pandemic-induced move towards working-from-home or hybrid environments, leaving outdated legacy systems unable to cope with the agility this demands.
Ultimately, the data that banks and financial services firms handle is very sensitive, either regarding customers’ financial information or traders’ operations. If compromised, this could present significant financial and reputational risk. Capital One Bank’s 2019 data breach, for example, which affected 106 million people across the U.S. and Canada, resulted in an $80 million fine. And the reputational consequences were tangible: in the days following the breach, Capital One’s stock plummeted from over $100 to $85 – both a consequence and catalyst of the reputational damage that the bank suffered.
All of this means that data control is more important than ever. But the truth is that moving to the cloud does not mean sacrificing control.
It is critical for business leaders to understand that leaving processes on legacy systems increasingly exposes you to loss and failure events, and that outsourcing your data and processes to third-party cloud providers is actually a more secure alternative. It can significantly increase efficiency and reduce costs by simplifying processes, as well as reducing the risk of non-compliance while simultaneously avoiding expensive in-house IT projects, both in terms of time and money.
Gaining insight through connectivity
In fact, moving to the cloud can put you in more control by facilitating a holistic view of your relationships as your business grows.
Connecting to an ever-changing array of trading partners, venues, clients, and regulators – and ensuring these connections remain valid – is a dynamic process. What’s more, firms must manage, map, and maintain the widely diverse and constantly changing data formats that flow between these parties.
Navigating this complex data landscape can cost millions every year in internal resources or point solutions that become stale. Moving this process to the cloud can give you the scalability your business needs to grow its network with speed and ease.
Work with the cloud, not against it
Despite a reluctance to overhaul existing processes and the temptation to bend cloud software to fit your own objectives, executives must understand that, in order to harness the power of the cloud, you must work with it – not against it.
A flexible approach, whereby firms understand that successful cloud migration might require some upfront work, is key. Integrating cloud with non-cloud, or different cloud services with each other, is often complex. A rigid attitude will likely result in disappointing results and data migration complexities, costing time and money better spent servicing clients.
Part of this flexibility is understanding best practice around how to use the cloud. The Bank of England (BofE) has warned that additional policy measures may be required to mitigate financial stability risks from the growing concentration of power in the hands of global cloud providers, such as Amazon, Google, and Microsoft. In response, firms should be looking at the ways in which cloud service providers are different and playing to those strengths to diversify their cloud portfolio.
It’s vital that firms have the right partner to help them navigate the application of their cloud technology across the major providers with relative ease, flexibility, and portability. What’s more, in addition to new BofE policy, big providers could be dictating cloud terms and conditions to major financial firms in future. Understanding and reporting on these requirements will cost valuable time, money, and resources that are much better outsourced to cloud-native technology experts.
Ultimately, a fear of losing control shouldn’t act as a barrier for cloud adoption. Once properly understood, the power of the cloud and its potential impact on business performance cannot be overstated, offering unparalleled benefits that, in an era where data control, integrity, and connectivity rule, could make or break financial institutions across the globe.