Are Financial Services Reaching for the Cloud?

Financial services firms have a long-standing reputation for being laggards when it comes to embracing digital technologies.

Historically, that hesitation comes from the unique challenges of operating in a tightly-regulated space with a whole host of security risks–and the high cost of failing to meet the demands that come with the territory.

However, attitudes are changing, and cloud computing in banking and financial services is the “new normal,” thanks to a few key drivers shaking up the sector.

For one, customers are demanding better experiences from their banks and financial institutions.

There’s also disruption coming from the rise of the Internet of Things (IoT), the growing challenge presented by big data, and the widespread availability of AI-enabled security and analytics solutions that help firms manage, secure, and profit from their data.

For small to midsize financial companies, cloud computing represents an opportunity to build new services, improve on old ones, and provide the banking experience their customers are looking for. In other words, cloud computing allows SMB to compete with large providers, 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 in Financial Services Makes Good Business Sense

With the market for financial services growing more competitive, companies are looking to cloud computing to help save on operational costs.

Back in 2016, Gartner reported that poor return on equity from hosting in-house data centers had prompted a mass migration to the cloud. According to the report, when the Commonwealth Bank of Australia moved their information systems into the cloud, they were able to reduce spending on maintenance and infrastructure from 75% of their total costs to 25%.

Now, with 2021 just over the horizon, cloud computing in banking and financial services isn’t just about saving money or streamlining processes; it’s evolved into a prerequisite for doing business in the digital (and now, remote, distributed) age.

A growing problem with hosting data in-house is that the volume and variety of data being generated is expanding exponentially by the day. As such, the costs associated with building, maintaining, and securing the required infrastructure are increasing.

With more and more financial services institutions migrating to the cloud, the competitive gap between cloud-enabled organizations and those still operating on in-house systems is only continuing to get wider.

Continued Security Risks and Compliance Concerns

While attitudes about cloud security are improving, potential security risks and ever-changing government regulations (including the Payment Card Industry Data Security Standard (PCI DSS), Sarbanes-Oxley, and Gramm-Leach-Bliley, the General Data Protection Regulation (GDPR), and now the California Consumer Privacy Act (CCPA) are still barriers to fully embrace the cloud.

Non-compliance–intentional or not–presents several significant risks ranging from hefty fines to reputational damage, lawsuits, and more. At the same time, avoiding the cloud is no longer a viable solution. Avoidance is a liability that prevents firms from gaining visibility into how their data (and their customers’) is being managed.

According to the 2019 Nutanix Enterprise Cloud Index Report, 60% of participants stated that security was their primary motivation for adopting cloud-based solutions.

Instead, financial services providers should look for solutions that meet industry standards for cloud governance: SOC 2, the Cloud Security Alliance Cloud Controls Matrix (CSA CCM), and CIS Benchmarks, as well as provide them with more control over their data.

Enter the Hybrid Cloud

Today, 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.

We won’t get too much into detail here, but here’s a quick breakdown of the differences between these three storage options: the term “public cloud” describes platform-as-a-service (PaaS) or infrastructure-as-a-service (IaaS) offered by third-party providers like Microsoft Azure or Amazon Web Services (AWS), while “private cloud” refers to cloud-enabled infrastructures hosted through a private, internal network or privately owned by a third-party provider.

Traditional, in-house data centers, on the other hand, provide a central location for running applications, housing physical equipment, and managing data though they don’t connect to the cloud.

Having hybrid cloud models at their disposal, organizations pick and choose a combination of in-house storage and public & private clouds. The mix of options is then configured with some level of interoperability between “locations.”

Hybrid cloud models provide more flexibility in terms of how an organization designs its servers, as well as greater security against single-point failure or performance issues. Financial services firms

Still, issues with privacy and security can be amplified if infrastructures aren’t fully compatible.
For example, 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.

Cloud Computing in Banking and Financial Services Presents New Challenges & Opportunities

The union between cloud computing and financial services is no longer the exception, it’s the rule.

As market pressure mounts, those financial services firms on the verge of migration will need to make some decisions about how to move forward–and fast–or else they may lag substantially behind their competition.

Tiempo’s nearshore business model leverages Mexico’s top development talent to provide clients with affordable software solutions that align with their business strategies.

Through a proven combination of resources, a mature Agile practice, and deep industry expertise, Tiempo’s high-performing teams understand what it takes to ensure a successful cloud migration following the strict regulatory requirements that this sector is known for.

Our technical focus includes Microsoft infrastructure and security such as .NET and MSSQL; Java, LAMP, and mobile application development.

Contact an expert today. Learn more about our process for bringing cloud computing to the financial services industry–safely and securely.