Niall Twomey, chief technology officer at Fenergo, discusses how the acceleration of cloud adoption in financial services is an encouraging sign
Financial services CIOs are becoming more willing to adopt the technology within their organisation.
In the past, financial services institutions have been criticised for the slow pace of their adaptation to the cloud era. Given the issues many established retail banks have had with legacy IT systems, that’s perhaps not a huge surprise – but many are beginning to realise that the cloud will have a significant role to play in extricating them from the pain of their old technology stacks, and are now far less risk averse than they once were.
Three or four years ago, many CIOs at financial services businesses just weren’t interested in cloud technology. Whether it was the perceived complexity of migrating workloads across from on-premises infrastructure, or privacy concerns – few were willing to make the jump to cloud in any meaningful way. However, that does seem to be changing.
We recently held a discussion forum for our clients, with many leading global financial institutions in attendance, where this was very apparent. In fact, cloud technology was top of the agenda for key decision makers. According to a recent Fenergo survey of global banks and asset management firms, almost two thirds (56%) of senior decision makers said investment in cloud technology was a top priority. And that is a very encouraging sign.
It was very clear to me from conversations at that event that changing attitudes to data privacy, the relative strength of different architectures, the response to the rise of digital banking and what the developments in artificial intelligence (AI) and machine learning (ML) will bring are front-of-mind for chief information officers within financial institutions today.
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Our discussions chiefly focused on the critical need for a cloud strategy in the financial sector and alleviating the concerns leaders had in this area. While this may have been a talking point in the industry for some time, we are now seeing real action being taken on it. Indeed, just in the last year, over a quarter of our major customers have moved to cloud-based client lifecycle management (CLM) solutions, and almost all new contracts are for cloud-based deployments. This is in stark contrast to 2019, when only a small minority of our financial institution client base opted for cloud-based CLM.
These changes are undoubtedly a result of a deeper understanding of the characteristics and benefits of cloud and greater confidence in its security. And this has led to a stark increase in adoption, eliminating previous concerns around data privacy and data identity management – but it’s not the only driver of change here.
The rise of digital-first banks, as well as how customer expectations and digital appetites have changed in recent years have influenced decision-making too.
While some might say that established financial institutions are just playing catch-up and trying to react to the current market dynamic, especially when it comes to cloud and digital investments, I’d say it’s largely irrelevant why they’re making these changes. The fact that they are is what’s important, and if different parts of the sector are pushing each other to go further and further in addressing some of the key pain points in their businesses – better serving partners and customers as a result – then that can only be seen as a positive.
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What’s also positive is the specific cloud-based systems and solutions they’re adopting. It’s not just a case of migrating workloads that don’t present any privacy and compliance issues into a public cloud instance, and retaining more sensitive data on premises in a more hybrid model than they would have used in the past. We’re beginning to see the cloud really permeate through financial institutions’ technology stacks – from the front office with customer experience, to the regulatory compliance technology used to onboard clients, conduct due diligence checks and detect red flags pointing to potential financial crime.
These moves are not made overnight and CIOs at any large organisation, including those in the financial services business, will have many competing priorities – often without the budget and resource to address them all in parallel. The question then comes down to how important each shift is as part of the wider transformation strategy – what’s the investment needed, how long will it take to recoup in efficiency savings, what growth opportunities does it enable, what risks does it mitigate.
I’d argue that after laying the foundations of a cloud strategy, with a review and rearchitecting of the businesses underlying infrastructure, that regulatory compliance technology like customer lifecycle management solutions should sit fairly high up on that list. Not only can they significantly mitigate the risk of incurring eye-watering enforcement actions and the reputational fallout of having sub-standard processes for anti-money laundering and terror financing requirements, but it can also remove a lot of the friction customers can experience during onboarding with more manual processes.
When regulations are constantly evolving, in multiple jurisdictions, a cloud-based approach to CLM is much more agile and adaptable to emerging challenges. Using a system that can be updated to always be compliant, provides risk management teams and ultimately the C-suite and board with the confidence that they are future proofed against evolving regulation and will avoid hefty financial penalties from regulators.
However, more than anything, financial institution CIOs are looking to their technology partners to help them make the right decisions for their organisations over the longer term. Transformation plans rarely, if ever, begin and end in any one CIO’s tenure – they are a continual process to move things forward for the organisation – but the efforts of individual leaders need to pave the way for the next without tying their hands and forcing them down a path that may present issues later down the line.
That’s the role all good technology vendors should play – clearly laying out the merits and potential pitfalls of the options in front of them, and working with them to chart the best way forward.
Whether banks are just looking to digitise existing processes or to use AI and ML to make more intelligent decisions and look for fraudulent behavioural patterns, the fact that more conversations are being had in the financial service world about cloud, or that these conversations are going somewhere, gives me confidence that we’re moving in the right direction and there are good days to come.