The financial industry has been hesitant to modernize its infrastructure for the cloud. But to realize the benefits, they will have to take it one step at a time.
Cloud computing is revolutionizing businesses by making tedious manual processes simpler and more efficient. Businesses within the financial services industry are great candidates for cloud adoption. They can expect to see improvements, including better productivity, reduced operating costs, and even increased security. But financial institutions have been slow to migrate to the public cloud. According to a recent study by PriceWaterhouseCoopers, 81% of banking CEOs worry about the speed of technological advancements. This concern is likely due to the constraints they face in digitizing their infrastructure.
What Keeps Financial Services Companies Away From Cloud Solutions?
Financial services companies increasingly face more competition. For example, deep-pocketed companies can rapidly launch new offerings to the market and quickly engage with customers. Most companies will address the pressure to compete by automating and digitizing their processes. However, financial services companies have a bit more to worry about.
Maintaining manual records — especially physical records — can dramatically slow down the process of serving customers. Financial services companies understand this problem, and “how we’ve always done it” has served well enough until recently.
For insurance companies, data is the business. Some of the biggest concerns about migrating to the cloud relate to security:
- the loss of critical data
- fear of having confidential data leaked or sold
- concerns over whether companies can integrate cloud solutions with existing infrastructure
- concerns over retaining IT staff to work with newer, cloud-native processes.
However, cloud technology isn’t about replacing the existing data center infrastructure or transforming every process. It is about enhancing what already works for a company and introducing new use cases. Natural Language Processing (NLP), for example, can digitize physical forms and algorithms can detect and secure personally identifiable information.
Migrating to the Cloud: Why Now is the Right Time
Thousands of financial services companies have survived for decades without adopting cloud services. So, why now? Will migrating to the cloud make things easier? Will it reduce costs or help expand the business?
To answer this, we have to consider the two kinds of companies in the financial services industry: companies that are happy to maintain their status quo and those which actively look to expand.
The Diminishing Returns of Status Quo
Companies that want to maintain the status quo tend to focus on customers within a mature age bracket. They appeal to these customers by highlighting their brand’s stability and maturity. They tend to make fewer major infrastructure, or IT changes because they don’t want to break what’s working. But the customer base is constantly aging, and as the financial industry expands, competitors can be appealing.
Typically, these companies find it difficult to appeal to younger customers who expect features like chatbot services and more digitized and automated processes that would enable them to apply for banking services or check their account details at the click of a button.
The Rise of Agile Competitors
There’s also pressure from rapidly expanding competitors. In Romania, for instance, many German insurance companies have opened up small subsidiaries and are looking to expand their market. Industry cloud giants like Amazon and Google have begun to offer extended warranties and other benefits.
Finally, there is the rise of digitally native banking solutions like Ally, Revolut, and Monzo. These banks are expanding rapidly by targeting younger customers and offering new takes on traditional banking products with mobile and online-only solutions. Both Revolut and Monzo host their infrastructures on Google Cloud which provides competitive agility that traditionally hosted banks struggle to match.
This rising feature demand and innovation from FinTech startups apply pressure to smaller financial services companies, which have not traditionally faced this type of competition.
Responding to Regulatory Change Faster
Moving to the cloud makes it easier for financial services companies to automate their processes, provide better customer support as scale, and slash the time required to service each customer. But, historically, the main concern has been remaining compliant with regulatory standards.
Cloud-native architectures can help financial service companies adjust to new demanding legislation like the GDPR, which regulates the storage and use of personally identifiable data for EU residents. Cloud services like Amazon Web Services (AWS) and Microsoft Azure offer encryption and security protocols to help companies stay compliant with local and national security and privacy regulations.
Cloud Computing in Financial Services: Getting Started
Migrating to the cloud might seem like a technologically daunting process, but the benefits abound. Cloud computing can equip finance companies with the tools necessary to stay compliant, store data securely, automate, and speed up processes.
Migrating to the cloud isn’t an overnight process, but it can be an iterative one. Cloud computing in financial services gives companies an edge over competitors, with faster and efficient processes that are fully compliant and secure.
Here’s how cloud migration benefits financial services and how to begin the process.
Avoid poor quality software vendors
There is a fair amount of cloud skepticism among financial service providers. Software vendors providing inadequate solutions, with projects going over budget, taking longer than expected, and creating data leaks, hasn’t helped the public cloud’s reputation.
Rather than prioritizing low cost, financial services companies should work with quality Independent Software Vendors and experienced partners who will help you calmly navigate the transition without putting your company at risk.
Start small and improve step-by-step
Most companies that offer financial services are unwilling to transform because the associated risk is too high. We recommend starting small.
Think of common pain points for your users; figure out the most tedious and time-consuming tasks, and start by automating those. Build trust with your business users by focusing on problems you can solve well. For instance, insurance companies typically have numerous paper forms that need to be imported to a record system manually. This task can be automated using NLP and save the company time without disrupting their existing systems or other processes.
Once ready to build cloud-native features to replace existing processes, ensure that business users A/B test them together. We find that new users of cloud-native systems quickly discover they complete their tasks faster and with fewer errors. These quick wins will help gain momentum and make user adoption smoother when the next new feature is released.
Monolithic Architecture vs. Microservices: A Careful Approach
Monolithic applications, which are traditional unified models for software, are slow and rigid. Rather than relying on a clunky bit of software that does it all, cloud computing offers a way to automate individual processes by building out a loosely-coupled, service-oriented architecture — aka. ‘microservices.’
The process of converting a monolithic application into separate microservices is similar to building a tower in the classic block game, Jenga. For instance, beginning by digitizing and migrating a particular application or system to the cloud is like pulling out a piece of the tower. The success of this careful balancing act means considering which pieces to migrate and which order to do so.
Looking Towards the Future: Cloud Services in the Financial Services Industry
To get the most benefit from cloud services, companies need to slowly migrate their offering and their data entirely to the cloud.
The first step is to assess where you are now. Evaluate the protocols you currently use, the servers you use, why they are needed, and what would happen if, say, a broken pipe destroyed them. How would that impact your business? This perspective can help you identify your biggest challenges and the areas where you can improve your processes.
The next step is to start shifting smaller processes onto the cloud slowly. For instance, you could begin by using the cloud to backup your most critical data, using a few lifecycle management tools from the cloud, or taking advantage of cloud encryption services. Using cloud technology gives companies higher flexibility and easier recovery from IT issues.
Migrating to the cloud also means benefitting from existing features and functionality, so you don’t have to reinvent the wheel each time. Get started by taking advantage of the most vital services the cloud has to offer.
For most financial services companies, moving to the cloud will be an incremental process. You can trust that the cloud will allow you to react to regulatory changes and dynamically compete for the next generation of business.
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