Are Financial Services Reaching for the Cloud?

Financial service institutions have historically been laggards with adopting digital technologies and data systems. In recent years, the Financial Services Industry has been experiencing tightening government regulation, creating hesitation around adopting digital technologies due to their high-level of security risks. However, these attitudes are quickly changing as the financial services market experiences disruptions from the Internet of Things (IoT) movement and more secure cloud computing practices are in demand.

A recent survey by PWC found that 71% of financial service industry leaders show a renewed interest in utilizing cloud computing within their services[1]. Medium to smaller financial companies see cloud computing as an opportunity to build up new services, giving them a greater competitive advantage. This has pressed larger financial companies to reconsider their stance on cloud computing, setting forth a motion a race to adoption.

Cloud Computing Makes Business Sense

With the market for financial services growing more competitive, companies are looking to cloud computing to help save on operational costs. A report published by Gartner found that poor return on equity from hosting in-house data centers will drive more than 60% of banks to migrate the majority of their transactions into a cloud platform in 2016[2]. For example, when the Commonwealth Bank of Australia migrated their information systems into the cloud, they reduced their maintenance and infrastructure expenditures from 75% of their total costs to 25%.[3]

A growing problem with hosting in-house data centers is the incredible growth of data density. The costs of building on, updating, and managing in-house systems continues to inflate overtime. As more financial services institutions migrate data systems to the cloud, the competitive gap between cloud-enabled companies and in-house systems continues to grow.

Continued Security Risks and Compliance Concerns

The benefits of migrating data systems into the cloud are renewing industry interest. However, concerns about the security risks are persistent. While attitudes about cloud security are improving, security concerns and changing government regulations are top reasons for hesitation. In a recent survey by Cloud Security Alliance, 61% of financial service institutions were still in the formative stages of their cloud computing strategy[4].

Government regulation, such as the Frank-Dodd Act, is still in development with the growing cloud market. The survey by Cloud Security Alliance found that 71% of financial institutions share a concern about growing regulatory restrictions[5]. 80% of financial institutions want better transparency and audit controls from the cloud to ensure compliance[6].

Hybrid Cloud Models

As market pressures reach their peak, financial institutions at the cusp of migration will need to make calculated risks about where their data and customer information is going. Most financial institutions are opting for a hybrid cloud model that allows them to orchestrate data flows between in-house data centers and public or private cloud systems.

Hybrid cloud models offer greater flexibility in the design of their servers, as well as greater security against single-point failure or performance issues. However, issues with privacy and security can be amplified if infrastructures aren’t fully compatible. Legacy systems or customized database management software will need professional consulting to ensure that systems are operating with maximum security against breaches or data corruption.

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[1] Julien C. et al. “Clouds in the forecast”. PricewaterhouseCoopers LLC.”

[2] Rob M. and Janessa R. “Gartner Identifies Top Vertical Industry Predictions for IT Organizations for 2014”. Gartner.

[3] Elliott H. “Cloud in financial services – what is it not good for?”. Business Cloud News.

[4] John Y. et al. “How Cloud is Being used in the Financial Sector March 2015”. Cloud Security Alliance.

[5] Ibid.

[6] Ibid.

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