Financial services firms, such as banks and insurance providers, are rapidly heading into the cloud, lured by the promise of multiple monetary, innovation and performance benefits.
Capital One surprised business and technology analysts late last year by announcing that it has shuttered its physical data centers and moved all of its operations into an Amazon Web Services (AWS) public cloud. In doing so, Capital One became the first major bank to completely transition to an all-cloud IT environment. It’s highly unlikely that it will be the last to do so.
Promises of lower costs and enhanced scalability are drawing a growing number of financial services firms into the cloud. “The ability to spin up resources elastically and run it at scale allows financial services firms to build better digital offerings and customer engagement, as well as keep up with the pace of an increasing customer base,” said Kelley Mak, a principal at venture capital firm Work-Bench. “Other benefits of cloud adoption include productivity, attracting talent, and security,” he noted.
After several years of sitting on the sidelines, even the most conservative financial services organizations are finally beginning to recognize the cloud’s benefits. “They are more accepting of the cloud, have seen its successful deployment in the financial services industry, and are becoming more adept at leveraging it as well as managing risk,” observed Jason Malo, a Gartner research director. Banks are not stodgy about technology, but they do need to be diligent and shown the value of a proven technology, he added.
Financial institutions rely on a tremendous, almost unimaginable amount of data. “Historically, that required on-premises data centers that were unfeasible for smaller community banks, lenders, or credit unions to compete with,” said Jim Pendergast, a senior vice president at business financing lender altLINE. “This limited competition and services [to] only the biggest banking brands with the resources to support [an] on-premises data infrastructure.” The cloud promises smaller firms a far more level playing field. “Smaller financial institutions can rival the big dogs in terms of service offerings and data security, plus avoid those astronomical old data center, equipment, and IT costs,” he noted.
Financial services firms are beginning to tap into the cloud to explore innovative new business services and practices. Connecting with third-party apps, for instance, promises to open the door to new customers and additional revenue streams. Pendergast pointed to ridesharing services, which rely on connecting to passengers’ debit cards or peer-to-peer payment apps to complete transactions. “Banks need the cloud to offer these connections and allow users to use fintech apps,” he stated.
Complex technologies, such as data warehouses and data marketplaces, are moving to the cloud, observed Jay Nair, senior vice president of financial services at business and IT consulting firm InfoSys. “This is enabling organizations to create a consistent data delivery strategy in a short time frame,” he explained. “In the core domains, like mortgage, clients are increasingly relying on the cloud for document management and AI solutions for mortgage origination as well as servicing.”
Pendergast noted that the cloud also offers firms a cost-effective way to test new apps and online services, as well as lowering costs by eliminating the need for expensive on-premises equipment that becomes outdated after only a few years. “On the flip side, you’ll see banks being able to enter and compete in new markets, boosting their revenue and scaling up at rates previously unimaginable,” he said.
Financial services firms need fast answers to key business questions. “Before cloud computing, a firm might [run] a nightly job to answer daily questions, [yet] the answers may not be ready for the next day’s start-of-business,” observed Ed Fine, a consulting data scientist at tech training firm DevelopIntelligence. “This scenario still happens more often than you might guess, and the delay in getting the needed information can have financial ramifications,” he added.