Capital One surprised business and technology analysts late last year by announcing that it has shuttered its physical data centers and moved all of its operations into an Amazon Web Services (AWS) public cloud. In doing so, Capital One became the first major bank to completely transition to an all-cloud IT environment. It's highly unlikely that it will be the last to do so.
Promises of lower costs and enhanced scalability are drawing a growing number of financial services firms into the cloud. "The ability to spin up resources elastically and run it at scale allows financial services firms to build better digital offerings and customer engagement, as well as keep up with the pace of an increasing customer base," said Kelley Mak, a principal at venture capital firm Work-Bench. "Other benefits of cloud adoption include productivity, attracting talent, and security," he noted.
Kelley Mak, Work-Bench
After several years of sitting on the sidelines, even the most conservative financial services organizations are finally beginning to recognize the cloud's benefits. "They are more accepting of the cloud, have seen its successful deployment in the financial services industry, and are becoming more adept at leveraging it as well as managing risk," observed Jason Malo, a Gartner research director. Banks are not stodgy about technology, but they do need to be diligent and shown the value of a proven technology, he added.
Financial institutions rely on a tremendous, almost unimaginable amount of data. "Historically, that required on-premises data centers that were unfeasible for smaller community banks, lenders, or credit unions to compete with," said Jim Pendergast, a senior vice president at business financing lender altLINE. "This limited competition and services [to] only the biggest banking brands with the resources to support [an] on-premises data infrastructure." The cloud promises smaller firms a far more level playing field. "Smaller financial institutions can rival the big dogs in terms of service offerings and data security, plus avoid those astronomical old data center, equipment, and IT costs," he noted.
Use cases
Financial services firms are beginning to tap into the cloud to explore innovative new business services and practices. Connecting with third-party apps, for instance, promises to open the door to new customers and additional revenue streams. Pendergast pointed to ridesharing services, which rely on connecting to passengers' debit cards or peer-to-peer payment apps to complete transactions. "Banks need the cloud to offer these connections and allow users to use fintech apps," he stated.
Jim Pendergast, altLINE
Complex technologies, such as data warehouses and data marketplaces, are moving to the cloud, observed Jay Nair, senior vice president of financial services at business and IT consulting firm InfoSys. "This is enabling organizations to create a consistent data delivery strategy in a short time frame," he explained. "In the core domains, like mortgage, clients are increasingly relying on the cloud for document management and AI solutions for mortgage origination as well as servicing."
Pendergast noted that the cloud also offers firms a cost-effective way to test new apps and online services, as well as lowering costs by eliminating the need for expensive on-premises equipment that becomes outdated after only a few years. "On the flip side, you'll see banks being able to enter and compete in new markets, boosting their revenue and scaling up at rates previously unimaginable," he said.
Financial services firms need fast answers to key business questions. "Before cloud computing, a firm might [run] a nightly job to answer daily questions, [yet] the answers may not be ready for the next day’s start-of-business," observed Ed Fine, a consulting data scientist at tech training firm DevelopIntelligence. "This scenario still happens more often than you might guess, and the delay in getting the needed information can have financial ramifications," he added.
Ed Fine, DevelopIntelligence
There's also strong interest in using fast and large-scale databases to power machine learning, Fine said. The cloud can make it easy to get data scientists and investment professionals access to fast and scalable data storage and recall. "This is a critical step in getting data to machine learning models," he stated.
On the flip side, the cloud gives financial service firms a pathway to updating aging systems without committing to costly capital investments. "Payments technology has several systems which are quite archaic and are being modernized at a frantic space," Nair observed. Cloud-native applications allow access to the latest technology and talent, enabling adopters to rebuild transaction processing systems capable of supporting very high volumes and low latency, he explained. "By moving to the cloud, they are making their platforms leaner and nimbler."
There don’t seem to be many use cases that are entirely off-limits for cloud as there used to be, Gartner’s Malo commented. "Even core banking has found its place in cloud deployments," he said. "Yet the control and protection of sensitive data is still a key concern that may hinder a move from on-premises management and control," he warned.
Jason Malo, Gartner
Both private and public clouds are welcoming financial services firms, noted Randy Armknecht, managing director and global cloud practice lead at business and IT consulting firm Protiviti. "The private cloud was the natural steppingstone from the traditional server-based infrastructure while the cloud service providers matured their security and compliance offerings and transparency," he said. "With the vast array of cloud-native services now available on the public cloud, and the accompanying compliance and resiliency, the public cloud's value proposition is enticing."
Takeaway
Financial services firms are some of the world's most locked-down organizations, mostly due to stringent regulations and the security threats they must repel as critical players in the global economy, Mak observed. "Despite these hurdles, financial services firms, like Capital One, have shown that it’s possible to leverage all of the benefits of a public cloud infrastructure while also remaining compliant and highly secure."
Follow up with these articles on financial services and the cloud:
What You Need to Know About Cloud-Native Fintech
What Financial Firms Want in Cloud Adoption Strategies
