“When digital transformation is done right,” said George Westerman, a leading researcher, “it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar”.
This encapsulates the test that is facing financial services companies. The industry landscape has been utterly transformed by digital transformation, which has also raised customers’ expectations and led to an explosion of competition from digital challenger banks, non-bank payment providers and pay services from technology giants such as Google, Apple and Amazon. Financial services companies, particularly the established, urgently need a response to this, as new business models could potentially impact up to 80% of current bank revenues by 2020, according to Accenture. This means overcoming the natural risk-averse attitude bankers harbour, to transform outdated legacy systems and commit to disruptive technologies, like blockchain and artificial intelligence (AI).
However, it is cloud computing that financial services companies are turning to tackle these issues. Indeed, around 60% of these businesses expect their IT environments to be multi-cloud, leveraging integrated use of both on-premises and externally hosted cloud infrastructure, according to a new report by 451 Research. Only 18% of companies, both financial and overall, said they are fully deployed on public cloud.
In the financial services space, the expectation of a multi-cloud future is both a realisation that certain workloads will remain internal, or in private hosted environments for the foreseeable future, and an endorsement of multi-cloud architectures as benefiting application performance (62%), meeting regulatory needs (43%) and opening a path to cloud cost optimisation (40%). Financial services businesses demonstrate higher cloud adoption rates when contrasted to the overall survey sample, for public cloud IaaS (51%, compared to 46%), on-premises private cloud (49 to 37%) and platform as a service (39 to 31%).
However, financial services companies are behind other business in deploying cloud as a central part of IT operations, with around 70 per cent saying their cloud projects are only at the initial, or trial and testing, stage. The lag appears to stem from lingering worries about relying on the cloud for implementing production applications. The disconnect between cloud interest and implementation underlines a prolonged preference for internal systems, driven by security and compliance problems and concerns around a dearth in cloud management skills.
The most effective route to combatting compliance and security problems and to fully embrace the cloud is to deploy a hybrid, or multi-cloud strategy alongside a modern container-based application architecture while leveraging a third-party managed service provider to account for any gaps in skills. Cloud platform expertise, IT security skills and machine learning expertise in specific cloud platform functions (including containers and microservices) are all in high demand. The most commonly identified skills gaps are the same for financial services companies as businesses in other categories. However, a greater percentage of financial services firms identified a skill as lacking in each case. The skill set most commonly identified as lacking by financial services was cloud platform expertise, named by 46% of firms, followed by information security (42%), machine learning and AI (37%) and cloud platform functions (37%).
Why adopt cloud technology in the financial services industry?
For financial institutions across the globe, the benefits of cloud adoption are undeniable. Such digital transformation brings with it a new agility, enabling a fresh acceleration of company strategies
Multi-cloud architectures, that rely on varying cloud vendors and providers, spanning a blend of public and private platforms, are rapidly becoming the standard at the majority of businesses in every sector. They are the best platforms for seamlessly managing workloads in varying environments, depending on their individual needs, and delivering agility, cost-effectiveness and performance.
Indeed, 60% of financial services companies surveyed by 451 Research said they expect to use various cloud platforms in combination with one another – marginally higher than the figure for other businesses (58%). This indicates that it is likely the financial services sector will use hybrid, or multi-cloud, architectures in next few years – as they seek to overcome barriers to implementation. However, to benefit fully from the multi-cloud architectures, financial services companies will need to look at containerisation. These companies outpaced the total survey sample in their prioritisation of containers and container management (29%); as they are key for both new, cloud-native applications and re-engineering of legacy applications for cloud migration. The modern, multi-cloud, containerised approach is also ideal to introduce disruptive technologies, such as AI and blockchain, into financial services companies.
AI and machine learning hold a lot of promise for the industry through the automation of manual processes, providing insights around customer behaviour and lowering IT costs; while blockchain has the potential to transform the way transactions are processed and how interactions between financial institutions take place.
How can organisations build a multi-cloud platform?
Indeed, financial services companies outpaced the overall survey sample in their prioritisation of AI and machine learning (36%). Although blockchain is less important to financial services businesses than these other technologies, at 24% to just 12%, it is nevertheless the technology for which they show the highest affinity as compared with the total sample. Fintech start-ups frequently work in AI or blockchain, and large incumbent financial services institutions are investing heavily in these areas too.
The extent to which financial services companies embrace the cloud could well determine how effectively they capitalise upon these emerging technologies. The next several years represent a watershed moment for financial services companies. They have demonstrated that they are forward thinkers in terms of the potential of the cloud; but now the moment has arrived to increasingly depend on the cloud for more production applications and emerging technologies – selecting platforms, partners, and tools that will see turn into butterflies, over caterpillars.