Financial institutions should master the approach of Cloud Computing to ensure a successful implementation.
Heyy there! Let's dive into the cloud realm, shall we? Money management, storage, and operations can all be streamlined like never before with advancements in technology. But where's the catch? Transitioning to cloud-based systems is your ticket to a sleeker, more innovative future, but many are hesitant. So, what's holding them back?
Unlocking the Potential for Innovation
The 2024 FIS Global Innovation Research reveals that opinions about cloud computing are slowly, but surely, shifting within the financial services sector. Despite lingering security concerns, the potential for transformation is causing a flurry of excitement.
Just over a third (37%) of industry players are optimistic about the value that cloud and edge computing can bring to their businesses, while a quarter (26%) believes that embracing cloud computing will have a significant impact on their operations.
Cloud technology has been around for over a decade now. And as it's matured, the scale and agility it offers have far outweighed the perceived risks for banks and capital markets firms alike.
Leading public cloud providers have done a great job in mitigating cybersecurity and operational risks. Plus, the cloud itself has proven to be the perfect environment for introducing innovative technologies and efficiencies to financial operations.
Artificial intelligence (AI) tools, which require substantial computational power, flourish best in the cloud. There, they can reach their full potential in accelerating business processes, gathering and analyzing data, detecting fraud, and personalizing the banking experience for customers.
So, it's clear that the financial services industry is less interested in cloud computing as a way to save money and more interested in using it as a platform for innovation. Cloud-based systems typically offer firms more freedom to configure and adapt their technologies and experiment with computational power without large capital investments in hardware.
The cloud's flexibility and scalability mean you can rent space for a new use case and return it if that use case fails. In short, if you want to keep growing, experimenting, and staying ahead of the competition, you need a cloud-first mentality.
Hesitation to Make the Leap
Despite the evident advantages, many banks and financial institutions remain cautious about fully migrating their operations to the cloud. And it's understandable—moving to cloud-based systems isn't merely a change in technology; it's a complete overhaul.
Legacy and homegrown solutions may not move easily or run optimally within the cloud or take full advantage of the extra computational power provided by the cloud environment. As such, their architecture may need significant modernization before migration, which can be time-consuming and costly.
In the long run, it might be more feasible and cost-effective to switch to cloud-native applications provided by third-party vendors.
While some firms have gone all in on cloud operations, others are migrating gradually, aware of the risks. In organizations currently using core processing technologies such as a core banking system, approximately 80% of leaders have strategies in place to manage the risks of migrating to the cloud.
Overall, firms want control in the cloud, over new technologies like AI, where their data resides and who can access it, their processes, and their costs. It's essential to understand what the cloud will cost you—especially as you scale your use cases and use more computational power. A predictable cost structure and a disciplined approach to cloud consumption could help prevent costs from mounting while allowing you to dynamically scale your operations.
Whether your costs increase or decrease, you'll likely be shifting how you spend on IT, moving from capital expenditure to operational expenditure.
Strategies for Financial Firms Facing Rising Costs
From competition to regulation, inflation, and outdated business models, firms are facing increasing costs on all sides. Andres Choussy, EVP, Group President, Asset and Trading Services at FIS, provides some strategies for getting ahead of these issues.
Embracing Resilience
In regions like Europe and the US, regulators are increasingly focusing on banks and financial institutions ensuring resilience, protecting against cyberattacks, internal technology issues, and other disruptions.
Cloud environments offer resilience and reliability naturally, boasting high availability, stability, and robust power. That's good news for institutions like banks that increasingly process transactions around the clock.
A hybrid cloud approach can further bolster resilience. If one environment fails, you can quickly switch to an alternative, letting processes continue in what's known as a "bare metal recovery." Edge computing, another distributed computing model, helps improve connectivity for multicloud deployments and reduces reliance on a single cloud provider or computing environment.
Hybrid cloud and edge computing strategies can also help meet the varying needs of your organization in a more cost-effective manner. For example, you could run AI applications in a powerful high-performance cloud while using a less powerful and less expensive local environment for routine processes.
Sharing Insights
One major advantage of cloud computing is enhanced access to information. When a group of applications run and connect in the cloud, all the data they process is stored in a central location. This is particularly useful when you need real-time data, such as real-time trading data.
At the same time, data-sharing technology is continually advancing. If you move your data and reporting infrastructure to the public cloud, a cloud-based data platform will allow other authorized users to access the data without logging into your systems or moving the data.
Moving data can be expensive. Now, a firm can migrate its data and reporting systems to the cloud and retain all the benefits of the on-premise infrastructure it has spent years developing. Nothing is lost or even reworked: the data is just accessible from a different location.
But is that data also secure? This is a top priority for financial services firms. However, open, generative AI applications can expose data to the wider world. As a result, financial services firms will likely have to develop their own large language models that run securely in the cloud while keeping the data isolated from the rest of the world.
Partners to Trust
Financial institutions require the collaboration of trustworthy partners to unlock cloud computing's full potential. Hyperscale cloud providers offer top-notch cloud computing technology with robust infrastructure, providing the best resilience, security, power, and scalability. These providers invest far more in their infrastructure than any individual client or technology partner ever could. When it comes to the cloud, they operate on a different level.
But to make cloud computing work for financial institutions and capital markets firms, you also need a deep understanding of the financial services industry, the regulatory landscape surrounding it, and knowledge of its idiosyncrasies. In short, the cloud by itself won't transform itself into a core banking platform, payment gateway, securities processing suite, or language model. It requires knowledgeable technology partners to provide the intellectual property of their solutions, advice on the best cloud strategy, and expertise in navigating complex regulatory and data sovereignty challenges.
Working together, hyperscale cloud providers and financial technology companies can support financial institutions with powerful, optimized solutions that run securely in the cloud. They trust each other and, as a partnership, are gaining the confidence of the market.
Time to Get Strategic
After over a decade of increasing prevalence, cloud computing has moved beyond being a trend: it's now a strategy that financial services firms must get right. Whether your organization aims to improve customer experience, cut costs, or enhance resiliency, it's crucial to align your cloud strategy with your business objectives and integrate it into your overall digital transformation.
- The 37% of financial industry leaders who are optimistic about cloud computing recognize its potential value, seeing it as a catalyst for transformative change that surpasses the mere streamlining of operations.
- As some banks and financial institutions migrate to the cloud, others are adopting a hybrid cloud approach, recognizing the benefits of a resilient system that can scale efficiently while maintaining control over data, processes, and costs.
- In an increasingly competitive landscape, financial firms are turning to hyperscale cloud providers and technology partners for expertise in navigating the complexities of cloud adoption, ensuring their cloud strategies are aligned with business objectives and integral components of their digital transformation.
