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Industry Cloud for financial Services – Fad or Future? (Dhiraj Sharma)

Promises of lower costs, increased scalability, capability to build innovative future digital offerings at rapid pace, enable better customer experiences across the channels and keep up the pace with ever growing customers demands are some of the key driving factors luring a growing number of financial services firms into the digital transformation using cloud and related technologies.

In the last decade, many financial services firms have begun their digital transformation and cloud adoption journey; however, the majority of them are still hesitant to abandon their on-premises infrastructure and embrace the cloud as a technology backbone, particularly for mission-critical workloads. There are many industry-specific hurdles such as ever changing regulatory compliance requirements, concerns over cybersecurity, data privacy and many others are turning out to be major roadblocks for large-scale cloud technology adoption. Various estimates and analyst reports indicate that less than 10% of mission-critical workloads in the financial services industry have been moved to the cloud. One cant imagine widespread adoption of the cloud technologies by the financial industry unless cloud service providers provide solutions to common needs of financial industry. 

Good news is that, many leading public cloud providers like IBM, Microsoft, AWS, Google and many other providers are attempting to offer a dedicate industry cloud or cloud solutions for the financial industry with a dedicated set of industry specific cloud capabilities, tools, accelerators, and unified set of security and compliance controls designed specifically for and in collaboration with the financial industry to assist banking and financial service enterprises in unleashing the power of cloud.

Prima facie, an industry-specific cloud for the financial industry appears to be a step in the right direction; the question is whether this will be just passing fad or whether this holds the promise in future.

Key Factors driving need for financial service industry cloud 

  • Despite the fact that cloud adoption is at an all-time high, total cloud spending in 2020 accounted  only 9.1% of global enterprise IT spending. While many have embarked on cloud journey, not many financial institutions can speed up their cloud adoption journey in last few years. Simply “lifting and shifting” applications to the cloud could result in sub-optimal performance. Yet rewriting or optimizing them for the cloud would be time consuming and costly. Industry clouds promises to accelerate and take the risk out of their cloud migrations.
  • Banking IT systems very complex and not particularly flexible, thus making it difficult and expensive to adopt cloud technologies. To solve these challenges, they need a new modular, interoperable architecture with intelligent operating environments that embeds risk management, security, and compliance in its core.
  • In many cases, Industry cloud are getting built as collaborative efforts through shared best practices and thought leadership provided by vertically specialized functional and implementation teams, global leader in financial services regulatory compliance advisory services (e.g., promontory financial group), many ISVs and SaaS companies.
  • Industry clouds will allow combining traditionally separate purchased solutions into a preintegrated and composable solution. This will make the sourcing, implementation, and integration processes easier to manage. 

What is the key advantage of having dedicated cloud of financial service industry? 

  • An industry cloud will provide a transparent public cloud ecosystem comprising of technology partners, Industry services providers (ISVs), software vendors, fintech and insuretech companies that will help financial institutions to balance their need to transform and modernize existing systems with the right balance of pre-built and highly configurable controls for cybersecurity, regulatory, and resiliency requirements.
  • To provide new solutions and services to their customers, financial institutions can collaborate with the industry cloud ecosystem, collaborations will allow them to generate new revenue streams, innovate, and introduce new products at a faster rate, increate business agility and adopt new business models.

How is the financial industry cloud market shaping up?

Given the opportunity in industry clouds, it’s not surprising that all major public cloud solutions providers like IBM, Microsoft, Amazon, Snowflakes and many others are offering broad range of financial industry-specific cloud solutions. While some offers dedicate cloud for financial services industry, many are offering solution for some areas of financial industry over the cloud. 

Both IBM and Microsoft have long histories of vertical market experience and large vertical market customer bases are able to leverage to build and support financial service industry clouds. IBM is working with two leading financial services institutions to build industry cloud offering and offers IBM financial cloud offering. Microsoft offers financial services-focused industry cloud from November 1, 2021. Amazon recently launched FinSpace, a data analytics service for the financial industry, and data warehousing giant Snowflake announced its first industry-specific data cloud, also targeting the financial services industry. 

What will be the key hurdles for an industry cloud adoption ? 

  • Today, an Industry cloud for financial services is still at nascent stage and essentially caters to the needs of specific areas or capabilities for financial institutions, it will take time before it becomes a one-stop solution for all financial institutions capability asks. In the future, the industrial cloud is expected to evolve into an ecosystem of cloud solutions comprised of multiple parties working in a highly sharing model sharing common resources and process and R&Ds that typically extends beyond the initial sharing of infrastructure and technology that cloud has traditionally brought to the table, this will become concerns for many financial institutions. 
  • Industry clouds are feared to follow the same path as community clouds, where underlying infrastructure will be shared and additional industry-specific features will be added like window dressing to provide industy specific capability, that may lead to frequently break compatibility and upgradability with the underlying cloud platform from which it was derived. This may expose financial institutions to the risk of a long-term unsupported copy of their preferred cloud.

Conclusion

Given the large opportunity in industry clouds, many cloud service providers would like to enter the fray and provide cloud solutions for the financial industry. Some offerings are more like marketing strategies than real offerings, at the same time there are few promising financial industry cloud offerings in the market that are getting created along with leading financial institutions to build industry clouds for the financial industry.

If you are a financial institution evaluating financial industry cloud, you should proceed with caution, comparing not only the industry cloud offerings of different providers, but also the financial industry cloud offering of each provider you are considering, as well as comparing the offering to their general-purpose cloud solution offering. In many cases, there may not be much of a difference.

An Industry cloud tailored to the needs of the financial services industry is the way forward for financial services companies looking to survive and thrive in future to stay ahead in the game.  

What are your thoughts on the industry cloud for the financial services ? I’d love to hear your thoughts in comments!

Further Readings 

If you want to read more on this topic, please consider the following additional resources

  1. The Gartner 2021 Hype Cycle for Emerging – Technologieshttps://www.gartner.com/en/newsroom/press-releases/2021-08-23-gartner-identifies-key-emerging-technologies-spurring-innovation-through-trust-growth-and-change
  2. IBM Cloud® for Financial Services – https://www.ibm.com/in-en/cloud/financial-services
  3. Microsoft Cloud for Financial Services – https://www.microsoft.com/en-us/industry/financial-services/microsoft-cloud-for-financial-services
  4. Amazon FinSpace – https://aws.amazon.com/finspace/
  5. Snowflake Financial Services Data Cloud – https://www.snowflake.com/snowflake-for-financial-services

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