Cloud Adoption in Financial Services

May 14, 2018

Hybrid IT may be the financial industry’s best pathway to the cloud

IT outsourcing and cloud computing in financial services haven’t become the game-changing technology strategies they are for other industries, but given the mass digitalization that’s taking over, the industry is definitely catching up. IT decision makers (ITDMs) in the financial sector haven’t been as open to the cloud or partnering with third-party providers, but colocation, SaaS usage, and IaaS are on the rise, which means the tides are changing as far as how cloud is used. It will take some time, but financial organizations will eventually reap the innumerable benefits the cloud has brought to other businesses.

  • 75% of financial organizations support their technology infrastructure in-house, suggesting that the industry will likely take long time to adopt to cloud and outsourcing.
  • While a fair amount of ITDMs reported managing infrastructure on-premise, 39% outsource colocation, and 33% outsource IaaS. - Flexential’s Financial Services and IT study: Tackling the digital transformation

Despite the fact that adoption has been slow so far, Flexential’s Financial Services and IT Study found that migration services are a common planned initiative for financial services. This suggests that while the industry isn’t in a desperate hurry to get to the cloud, it may become a key initiative within the next few years. The study also found that the main factors for cloud hesitation are security and compliance, along with the perception that businesses can deliver applications better in-house.

  • Security is at the top of the cloud concerns list, with 82% of businesses citing security and data privacy as the main hesitation, and meeting compliance standards at 61% – although banks in particular are notably more worried about compliance. – Flexential’s, Financial services and IT study: Tackling the digital transformation

There’s a moderate amount of cloud fear lingering in finance, but increasing digitalization is going to force the hand of many organizations. Every day, more financial institutions write their own applications to meet the demands of online and mobile-oriented consumers (which today, is almost everyone). Sooner or later, in-house technology infrastructure won’t make any sense for banks. In the meantime, there’s a stepping stone: hybrid IT.

According to VMware, the forward-thinking organizations in financial services are making their cloud moves in order to increase revenue and improve cost efficiency. The market and tech pressures of digitalization have pushed IT leaders to modernize their legacy apps and upgrade infrastructures. Those who begin cloud migration are likely to choose alternative cloud deployment models that address the specific IT nuances of the financial sector.

Unique IT considerations in financial services

  • As Microsoft explained, the financial sector operates around capital markets, banking, and insurance, and each industry’s profile has very specific regulatory requirements.
  • The myriad regulatory requirements of each industry make varying application and infrastructure architectures necessary, yet they all require certain things: scale, uninterrupted connectivity and flexibility.
  • Financial services customers have high demands—they want their banking information at the tips of their fingers, every minute of the day, which means new requirements for all of banking’s systems.

Given the distinct parameters financial IT operates on, hybrid IT can enable the capabilities they require without the need to commit to all-cloud, all at once.

It’s an interesting time for the financial sector. As evidenced by Flexential’s study, the primary business drivers of hybrid IT strategies for financial companies are:

  • Ambitious growth plans
    The financial services industry is showing a marked ambition to increase revenue in the coming years, as well as confidence in its ability to meet the hard demands of their customers through portals, applications, and the instantaneous delivery of data.
  • The takeover of digitalization
    Financial organizations have to respond to customer demand—the power is now in the hands of the consumer, and it’s staying there. Most banks and insurance offer customer portals and mobile apps, and the majority of internal initiatives need to go digital too.
  • Reluctance to changes in technology
    Where innovative technology is concerned, it’s not a lack of interest or resources that’s slowing the financial sector down. The primary hurdles are greater government regulations and the resulting approval process.

All of these factors are motivations for hybrid IT deployments, especially the general reluctance to adopt new technologies. Hybrid IT is a way to put the cloud to the test without carrying out a full migration and implementation all at once. Businesses can move ancillary applications to the cloud and keep mission-critical applications physical and on-premise until IT is able to fully evaluate the benefits and security capabilities of their cloud offering.

As further explained by Microsoft, traffic, data, and computing requirements can change suddenly in the financial sector. As a result, provisioning and de-provisioning as needs change is not negotiable. Since the industry overall is slow to adopt, many organizations deal with legacy apps that can’t support every digitalization initiative (such as mobile app support and BI, for example). Here’s where hybrid IT brings considerable benefits to financial organizations:

  • Control over network topology and configuration is maintained
  • Public cloud capacity is managed the same way as on-premise infrastructure
  • Scale, power, and flexibility are supported by the on-demand capacity and capability of a hybrid IT environment

The ability to move workloads between clouds makes hybrid IT a good option for financial services whose cloud initiatives are evolving, as pointed out by VMware. Retail banks in particular share common use cases that make the hybrid cloud the ideal setup given the industry landscape of today:

Retail banking IT challenges solved by hybrid IT

  • Enabling digital capabilities for customers (online portals and mobile apps). The growth of online and mobile banking that offers functionality similar to a physical branch also means potential latency, as a result of sudden increased demand.
  • Supporting massive and steadily increasing data storage requirements. The proliferation of big data, sophisticated analytics, machine learning, automation and mobile apps requires considerable infrastructure upgrades and continual development.
  • Greater high-performance computing needs. Technical capabilities like risk analysis or robotics involve a wealth of complex computations, which causes greater strain on in-house systems and creates the need for more capacity.

Getting ahead in financial services with hybrid

The financial services industry’s need to manage the complex challenges of digitalization, as well as the industry-wide tendency toward slow adoption, presents something of a double-edged sword. On one hand, digitalization is an exciting change that is empowering consumers to make life-changing financial decisions remotely. On the other hand, adoption reluctance, especially in the cloud realm, can be a barrier to digitalization.

Hybrid IT is an excellent option for financial organizations ready to get their foot in the cloud, so to speak. Agility, flexibility, and scalability are key in an industry dominated by data analytics, automation, and robotics—not to mention making sure customers have constant access to their information.

The beauty of hybrid IT is the ability to combine colocation, cloud environments and in-house management, extending technology services in a way that’s not possible for on-premise infrastructure. With new capabilities added to financial services all the time, the ability to make changes quickly is key.

As financial organizations continue to move workloads off-premise, migration and implementation services can make the process much smoother and less stressful; your IT team can focus on business as usual while a team of experts manages the migration process. Outsourcing may also prove beneficial post-migration, as well as compliance packages that reinforce the integrity of your IT systems and infrastructure.

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