Financial services firms around the world are facing big challenges that threaten the business environment in which they operate. Concerns around regulation and compliance are growing with the development of new, never-before-seen technologies. Financial technology products and companies (“fintech,” for those in the know) are consistently outpacing their slow-moving competition when it comes to winning customers, generating revenue, and improving margins. Innovative technologies such as blockchain are entering the scene, drastically changing the way financial services companies do business. On top of this, shareholders are demanding that companies keep up with and stay involved in these ever-changing macro trends.
In response, many financial services executives are overhauling their technology strategy and the teams that deliver critical services. They are restructuring, hiring new resources, consolidating systems, adopting automation at a record pace, and decommissioning legacy services. One of the most frequent and most impactful changes they are making is moving their business to the cloud.
A Mass Migration to the Cloud
In fact, more businesses moved to the cloud in 2017 than ever before. This trend is only expected to increase, with 73% of companies planning to move to a fully software-defined data center in the next two years. Companies are drawn to the cloud for a variety of reasons. Some are making the switch to become more technically agile and keep up with the swift changes in IT. Others are looking to decrease technology costs and better manage their spending. Still others are seeking to improve their speed-to-market through the adoption of accountable empowerment for the solution delivery teams. No matter the reason, organizations must fully assess their readiness for the cloud, as well as the benefits and challenges associated with cloud adoption, before attempting to migrate.
While many industries have seen widespread cloud adoption, the financial services industry has historically been slower to make the move. Still, competition from fast-moving fintech innovators means that finance companies must innovate their technology delivery methods to stay relevant. Companies that lean into their technical capabilities like Stripe and SoFi are capturing business from traditional banks in lines of business the banks have owned for years like payment processing and loan refinancing.
Adjacent to the market, regulators and auditors are generally lagging in their pace of cloud adoption and only recently have aligned with the present-day reality of cloud computing. One such example is the New York Department of Financial Services’ (NYDFS) recently enacting cybersecurity regulation 23 NYCRR Part 500 that went into effect in March of 2018, with the transition period ending this coming September.
Don’t Get Left Behind
For established financial services companies to hold their ground, they will need to take a lesson from their competitors on innovation. These companies need to adopt, build, and distribute new technologies and perhaps even consider themselves as being in the IT business.
While some financial services organizations have been slower to adopt the cloud, Goldman Sachs is an early adopter of cloud computing. In fact, Goldman Sachs’ CEO Lloyd Blankfein has been quoted saying, “We are a technology company.” Goldman has managed risks such as a negative perception of cloud safety, anxiety around making a sweeping IT transition, and concerns about cost. Overcoming these obstacles has allowed Goldman to realize the benefits of their significant investment in cloud computing. With 90% of Goldman’s more than 200,000 servers housed in the cloud, they enjoy greater compliance oversight, reduced deployment times, and a 20% reduction in total costs.
Companies are starting to overcome the obstacles to making the transition and realizing the benefits of moving to the cloud. In this article series, we will address the challenges and benefits that financial services companies can expect from moving to the cloud.
Obstacles Companies Face:
Cybersecurity, regulatory, and compliance concerns
Excessive technology “debt” and lack of consistent, enforceable processes in the cloud
Lack of executive sponsorships and a clear cloud strategy
Inability to accurately estimate, forecast, and manage the total cost of ownership
Benefits of the Cloud:
Increased technology scalability and elasticity
Increased application delivery velocity
Reduced technology delivery costs
Improved reliability through a regional, distributed model
In the next installment of this series, we’ll explore more in-depth the challenges and obstacles companies face when considering a cloud migration.
Trying to assess your financial services firm’s current state of cloud adoption and develop a forward-thinking roadmap? Reach out to Credera to find out how we can help.