It’s an exciting time for the financial services industry as Generative AI, blockchain, embedded finance and BNPL-as-a-Service are poised to further customer experience innovation. However, many legacy FSIs struggle to keep up with the ‘digital revolution’, due to what I call the ‘cloud conundrum’ - this is the phenomenon when traditional players are faced with too many choices as to where, and how, they build these bleeding-edge applications – and this quandary is seeing them fall behind their nimbler challenger competitors. Do they build their own applications in the cloud to try and get a head start on the competition, or do they buy up smaller cloud-native competitors to draw level with challengers?
Banks also have to tackle a rapidly evolving regulatory landscape making it critical to clarify where applications are built and where data is stored. The introduction of the Digital Operational Resilience Act (DORA) in Europe is driving banks to readdress Operational Resilience and build cloud outage recovery capabilities. Even before DORA, CIOs know that they are the Accountable Executive (a FS regulatory term) and they will be increasingly aware of the challenges of managing and storing sensitive and critical data. This is driving the need for data sovereignty, where data control is bound by the privacy regulations within a nation or an industry.
According to our 2023 IDC, Implementing Digital Sovereignty in the Journey to Cloud research, FSIs were the least likely industry to say that data sovereignty was a ‘significant concern’ – implying that not enough of their core data was stored in the cloud where data sovereignty laws would impact them. However, neglecting sovereign data, and subsequently sovereign cloud adoption, directly impacts a bank’s ability to optimize their business and operations.
Whilst the need for specialised personnel and funding may seem like a daunting overhaul to FSI IT leaders, but there are numerous ways that FSIs can implement a multi-cloud strategy with minimal disruption.
Overcoming barriers to cloud financial services
Despite the cloud now being widely accepted as an essential launchpad for innovation, our recent data reveals that financial services businesses are one of the least likely sectors to say that true multi-cloud architectures are critical to their business success (only 45% said they were critical vs 74% of construction firms, according to our research in July 2022).
The truth is, the majority of FSIs that are over 30 years old are encumbered by ‘heritage’ systems, older architecture, processes and even ‘in the box thinking’ that means they struggle to manage application overload.
For years, larger FSIs have been accruing applications as they expand their offerings or as they acquire other firms. The end result is that they often have multiple tools doing the same tasks in different parts of their business. This can mean inefficient and costlier processes as FSIs add new capabilities, with dedicated staff being required for each system or platform.
FSIs need to look at slashing IT costs and operational complexity by creating a standard infrastructure that lives on one digital foundation across private, hybrid and multi-clouds. Then by deploying automation across these services, they can minimise risk and increase efficiency by constantly scanning for other applications delivering similar services – allowing them to make tactical decisions about what they retire, and what they modernise.
Making cloud migrations smart
Cloud migrations can be incredibly long-winded, as highlighted by Deutsche Bank’s 13-year completion of its integration of Postbank. The scale of these migrations to the cloud is often a barrier for IT chiefs thinking about enacting full-scale digital transformation. However, not all apps will require the same treatment for transition to the cloud and IT chiefs can start small with their modernisation efforts by making changes to more peripheral systems and datasets.
IT personnel may also be concerned about the growing number of personal penalties that can be levied when things don’t go to plan – a high profile example of this is the case of the TSB IT migration failure. CIOs are now more mindful of managing risk as they don’t feel they can afford the luxury of failure.
However, there are some simple ways CIOs can help themselves in the overall process. From the start, they need to be asking the right questions both to their cloud provider and internal stakeholders, to make sure expectations are fully aligned across both parties which will help avoid cloud lock-in. They could also look to start the cloud migration process with applications that are less integral to the core banking infrastructure, in the event something goes wrong. This will give product teams more learning experience early on, helping to really refine processes before moving onto trickier migration challenges in the future.
Tackling the ‘cloud conundrum’ for rich rewards
The need for FSIs to keep pace with consumers’ expectations of digital experiences in all parts of their lives is driving greater innovation in the sector.
In order to deliver on this promise, FSIs need a multi-cloud strategy in place that reduces their complexity and helps them accelerate applications to market. This will give them the framework to scale their business, drive growth, and improve the employee experience, all the while bringing bleeding-edge solutions to customers. This will also bring the added benefit that CIOs are fully in control of their architecture, and not exposing themselves and their organisation to unnecessary concentration risks or data sovereignty issues.
While there isn’t a silver bullet for those hoping to unlock the true potential of digital services, a good multi-cloud strategy can help FSIs stay competitive in a market filled with challengers, without having to wholesale change the architecture their technology is built upon. Those who can navigate this will reap the rich rewards that come with the power of true transformation.