8 Factors Driving Cloud Adoption in the Financial Sector

16-11-2020 / CloudOps

More and more financial services organizations are migrating into the cloud and adopting cloud native frameworks. A recent report found the global finance cloud market is expecting to grow to a value of $80.53 billion by 2025, with a CAGR of 23.79% over the forecast period of 2020-2025. While the cloud was, for many years, a move perceived by banks as too risky, a number of factors are driving its adoption at an accelerating rate.

1. Need for Agility and Flexibility

Most financial institutions have copious amounts of legacy systems that are simply lying there, consuming resources. These systems are monolithic, heavily siloed, and difficult both to change and scale. In contrast, cloud native platforms are scalable on-demand. When software features are released to distributed, microservice-based applications by DevOps teams, organizations are able to innovate in response to market changes and pivot as needed.

2. Transition towards OpEx Models

Traditionally, financial services organizations used on-prem data centers that required massive CapEx investments to purchase space, equipment, software, and trained workforces. The cloud offers a great opportunity to switch IT spending from CapEx to OpEx models. While CapEx expenditures are more of an upfront investment, still require operational costs, and often need to be replaced every few years, OpEx items are usually tax-deductible and can be subtracted from your revenue to calculate ROI.

3. Need for Real-Time Information

The need for real-time information is present in all industries but is especially strong in the financial sector. These organizations often leverage high-frequency trading applications to analyze tick-by-tick data and search for signals in markets, such as price changes and movements in rates. After identifying trends before other investors, these applications can execute and change orders and strategies within milliseconds. If an application lags by just a few seconds, the organization could lose billions of dollars. This need to reduce latency is a key driver of cloud adoption for the financial services industry.

4. Massive and Steadily Increasing Data Storage Requirements

Financial services organizations have always had to store massive amounts of data, and storing this data properly has always been an important part of maintaining operations while minimizing cost. In recent years, the proliferation of big data, sophisticated analytics, machine learning, automation, and mobile apps means these pools of data have only grown. Considerable infrastructure upgrades and continual development are critical to sustaining this growth.

5. Changing Customer Behaviour

The behaviour of customers is changing quickly. A survey by Gallup found that, in 2018, only 66% of millennials had visited a physical bank branch in the past year. Younger generations are increasingly using online banking services, especially on their phones. Banks need to offer customers personalized digital experiences, services that are enabled by cloud native technologies.

6. New Kinds of Services

In addition to supporting more mobile experiences, cloud native technologies also offer banks the ability to provide unique types of services in the marketplace. Customers are also looking for new kinds of applications to support new investment types.

7. Security and Compliance

The financial industry operates around capital markets, banking, and insurance, and each industry’s profile has very specific regulatory requirements. When you layer the laws of different countries and regions, you have quite a complex map of constantly changing regulatory requirements that financial services organizations have no choice but to adhere to. Offering improving security mechanisms, public cloud providers can actually be much better than traditional systems at systemic security services, such as identifying potential breaches. Organizations that follow container security best practices can secure their applications against a wider range of attacks.

8. Green IT

The urgency to reduce greenhouse gas emissions means financial services organizations are looking for ways to lower the carbon footprint of their IT. The cloud will play a pivotal role in enabling both. The transition from smaller, on-prem data centres towards public, hyperscale cloud providers has resulted in greater PUE (power usage effectiveness) due to power supply efficiencies and stronger cooling systems. Financial services organizations are additionally looking to the cloud as an enabler of ways to provide green innovators with easier access to capital.

As more and more of the financial sector makes its way into the clouds, those that have embraced cloud and cloud native solutions are seeing results. Cloud is ultimately about improving agility, efficiency, flexibility, and security. It’s therefore moving to the forefront as a focus for C-suite executives and board members.

The biggest challenge faced by information technology teams is a competitive pool of talent. Relevant skill sets are hard to find, expensive, and difficult to retain. In a 2019 survey, 46% of respondents were facing a lack of basic cloud platform expertise. Financial services organizations will need IT professionals that can keep up with the ever-changing cloudverse, in order to achieve and maintain high-performance delivery of software-based solutions.

To learn more about how financial services organizations can build and operate cloud native technology stacks, read our white paper 'Securing Your DevOps Platform.