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The global financial services market may be well on the road to recovery from the 2008 economic crisis, yet the past few years have seen much turmoil; with regulations, security and increasing competition on the agenda of every financial sector CxO in the industry. We see emerging digital-first fintech players such as Fidor, Tandem and Starling, shaking up the market. To keep pace with these changes, maintain existing customer relationships and attract new ones, banks and insurance companies must transform their IT services and increase their reliance on flexible, agile solutions.
But this transformation will only happen through the use of new technologies, methodologies and business models within the financial services market; made possible through cloud. Here, I discuss the key challenges facing banks and insurance companies today and why cloud has become an agent for digital transformation in the financial services market.
Financial CxOs’ top concerns
If we first take a look at the key issues being discussed at every financial services business board meeting, it’s clear that organizations across the industry face testing times. Many banks have been forced to close physical branches, and they’re consolidating services across the board to change the way that financial products are being delivered while ensuring they can maintain existing customer relationships and form new ones. Secondly, they’re being hit by new regulations such as data protection legislation, GDPR, and PSD2, which could fundamentally change the payments value chain. Both directives are being enforced from 2018 to tighten privacy on customer data in response to growing security concerns. As services are increasingly being migrated to digital environments, they’re being opened up to more vulnerabilities on the network, with the threat from cyber criminals intensifying.
Finally, banks are facing increasing competition from fintech players, like Moven and Atom Bank, which were born in the cloud era. With no capacity to invest in their own private infrastructure, these start-ups had no choice but to develop modern apps in the public cloud on services such as AWS or Azure, and as a result, they’re ahead of the game today. Traditional financial services companies must adapt if they’re to survive in a market that is dominated by these nimble, more agile businesses.
But using cloud isn’t anything new…?
Cloud has traditionally been used by banks as private cloud infrastructure to modernize data centers, automate operations and improve performance and reliability. Taking advantage of the industrialization and better mutualisation of these platforms, CIO improved resilience and reduced costs.
Cloud Trends in Banking
Cloud has particularly helped to readjust the “80/20 split” (traditionally, an 80% IT expense in day-to-day services vs 20% investment in new projects) – to more like a “50/50 split” today; enabling teams to be redeployed from daily support and incident management to new projects and application development. First hand at Atos we have seen that almost 90% of Financial Services organisations are using cloud-based services and over half already have an explicit cloud strategy; of those the vast majority (92%) rely on a hybrid of Public and Private Cloud services hosted both externally as well as in-house*. Cloud adoption is set to increase with big banks projecting to grow from as little as 0% public cloud adoption to 30% by 2019, as reported by The Wall Street Journal. “Cloud-first” announcements have been made by many major international banks. Société Genérale plans to have 80% of its applications in private and public cloud by 2020; AXA plans to have 98% of workloads in cloud by 2020 and Deutsche Bank expects to quadruple its use of private cloud systems to 80% by 2020. However, small and medium banks and insurance companies lag behind in terms of maturity in cloud adoption.
The real benefit of cloud lies in being able to support new applications
While these early signs of cloud deployment are promising, true digital transformation demands much more from banks’ IT systems. Banks are under pressure now more than ever to deliver a fluid digital customer journey to customers, one which is quick and simple to use. Our research shows that over half of consumers (52%) admitted to abandoning a digital service if it was not quick or easy to use**. Therefore to support this we need to see more flexibility, more agile infrastructure and continuous delivery of services; and cloud technology is the main driver for this revolution in financial services. The real power of cloud lies in the upper layer of the IT stack. By giving banks the capacity to set up innovative new platforms, they can develop, test and launch new cloud-native applications in weeks, not months, that rely on data analytics and run on mobile systems; supporting multiple devices, such as PCs, smartphones and tablets.
This is made possible because cloud-native applications enable software to be separated from physical resources, allowing hardware to be manipulated as code and applications to be managed in a seamless and fast process from development to deployment. Those banking organizations that do start to adopt these types of services will be those that succeed in the era of digital transformation; while those that don’t run the risk of falling behind.