FINANCIAL SERVICES INDUSTRY AND THE ADOPTION OF CLOUD COMPUTING: AN INTRODUCTION
Cloud computing is the new kid on the block that everyone is talking about. Introduced as a conceptual ‘Intergalactic Computer Network’ in the 1960s, it was only in the late 1990s that the technology became mainstream. The past decade has seen a lot of industries moving to a cloud based infrastructure. Financial Services Industry (FSI), however, has been one of the slower adopters of cloud computing services. This article explores the love-hate relation between Financial Services Industry and Cloud Computing.
Cloud computing allows organizations to get up and running on an outsourced IT infrastructure without the time or cost investment. Besides the cost savings, the managed infrastructure model allows organizations a lot of flexibility. Banking and financial institutions are famous for their legacy systems. Cloud computing allows financial firms to start modernising their technology with minimal investments.
Banks and financial institutions have been amongst the slowest across industries when it comes to adoption of Cloud. To understand the factors affecting cloud adoption, Cloud Security Alliance (CSA) conducted a survey. An interesting revelation in the study was the correlation between customer behaviour and the bank’s ‘no-cloud’ policy. Only 3% of banks that had more than 25% of their customers using digital channels to interact with the them, had a ‘no-cloud’ policy. Whereas 19% of banks with less than 25% digitized customers a ‘no-cloud’ policy.
Not surprisingly, smaller companies with less than 500 employees were more attuned to adopting a cloud policy. The study also reveals that adoption of cloud technologies is rather ad-hoc. Financial firms adopt cloud technologies for specific use cases, such as CRM and Email. Few financial firms adopt a complete cloud based approach. The study shows that cloud adoption for financial firms has significant growth ahead.
HESITATION IN CLOUD MIGRATION
One of the biggest reasons that financial firms are hesitant towards a cloud migration is the perceived security risk. The data owned by banking and financial institutions is highly sensitive and critical in nature. Though there are security certifications and encryption standards in place, financial firms still largely prefer to have complete control over their data. This is one of the major reasons why most of the institutions opt for a mix of private-public cloud strategy.
Another concern that plagues financial firms and hinders their cloud adoption is the legal and government compliances. Some regulatory agencies have mandated in-depth audits and due diligence before choosing a cloud vendor for migration. The time, effort and expense needed for such activities can be rather significant, causing delays.
Concerns around choosing the right vendor is another factor delaying a strategy to adopt cloud. Financial firms that have time-sensitive trading applications need exceptionally strong SLAs with no downtime. Incidents of publicised downtime can cause significant damage to the firm’s reputation.
Infrastructure flexibility, decreased cost of ownership, and reduced time to market are some of the reasons that justify a move to the Cloud. As the adoption of cloud computing becomes more prevalent, financial institutions need to weigh the benefits and risks involved, before taking a decision. At the same time, providers of the Cloud need to work closely with financial institutions as well as regulatory agencies to better understand their requirements and implement them in an efficient manner.
While there is no doubt that migrating to a cloud based infrastructure has numerous benefits, there is still a huge gap in its adoption. The cloud technology will continue to improve. As better tools around security, data protection and auditing become mainstream, we’ll see a faster adoption rate by the financial institutions.
If you’re thinking of experimenting with cloud computing for your firm, our consultants will be happy to talk to you!
ABOUT THE AUTHOR
Managing Director – Products and Solutions