Fifteen years ago, I did a major survey into the use of cloud computing in financial services. Bear in mind this was really early days, and the results were quite nebulous. The main headline was that cloud computing needs better definition to succeed:
The research report, which encompasses the views of over 230 financial professionals demonstrates a clear desire to increase the use of cloud computing within most financial institutions. Its benefits are clear to the IT departments of institutions, and the potential to increase existing levels of operational efficiency and avoid further capital expenditure will ensure that the issue rapidly rises up the management agenda. However, the line of business do not see the relevance of such technologies as the business applications are not being articulated well. Equally, a general misperception that cloud computing has to be off-site and in a third party public domain means that most institutions have security concerns about its usage which will constrain faster market growth.
Bear in mind that was 2009. A lot has changed since then and most banks I meet today have moved anything from a fifth to most of their operational infrastructure into the cloud. Since then, we have also seen the rise of fintech, massive changes with APIs and open banking, and far more ecosystem and platform plays. Times have changed.
Probably my favourite story which I recite often – yes, as you get older you become a bore – is the CIO who wanted to move things to the cloud. The Exec said no, the regulator would never allow it due to security concerns. The next Exec meeting, the CIO presented the same plan. The CEO said we told you that we cannot do this as the regulator will not allow it … why are you presenting the same plan once again? and the CIO opened the door to welcome the regulator into the room who said we like it … what’s the problem?
Another key moment was at a conference I chaired in the Middle East and an analyst with Gartner explained how cloud was confused. It is not cloud. It is what cloud is being used for, and the use cases had been poorly articulated, as my headline in 2009 stated. You need to show how cloud can be used, and not just talk about SaaS or IaaS, etc.
This is actually true of Big Data, AI, blockchain and other areas. The hype cycle builds the expectations but what is it actually good for? That’s the key question I would be asking as a decision maker.
I’ve lots of other stories about cloud in financial markets but the reason for blogging about it today is a friend sent me the newly released report on the state of cloud in finance from Cap Gemini.
So, where are we in 2024 compared to 2009? According to the report:
Cloud has become a building block of financial services firms’ business strategy, with a 25.9% increase in the mention of cloud-related terms in the annual reports of the top 40 Tier-One banking and insurance firms between 2020 and 2023.
Similarly, more and more organisations have at least one cloud platform – 91% in 2023, up from only 37% of financial organizations in 2020 … however, in reality, financial services firms face numerous challenges when attempting to maximize cloud value … fewer than 40% said they were highly satisfied with cloud outcomes broadly; including reduced operational costs (33%), enhanced scalability (27%), accelerated innovation (26%), advanced data and analytics (24%), and improved security and compliance (21%).
It's still early days.
The key thing for me is whether you are cloud-based or cloud-native, something I blogged about four years ago.
The thing here is that an awful lot of financial institutions migrated to cloud because they were forced to do so by the pandemic, and the fact that staff had to work from home. There was zero rethinking of business model and process. It just had to be done. That is cloud-based.
On the other hand, a few institutions are truly remodelling to engage the platform ecosystem through APIs in the cloud. That is migrating to become cloud-native.
How many financial firms are cloud-native? Based on the Cap Gemini report’s analysis, about 12 percent. That is 1 in 10 firms. 90 percent to go then!
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...
