By Nicholas Ismail, Global Head of Brand Journalism, HCLTech
For many industries, the public cloud acts as a catalyst for driving continuous modernization and innovation. This reimagined, flexible way of working helps create new proactive business models that allow organizations to not only survive but thrive in the digital era and respond to clients’ constantly evolving needs with new products and services, and better customer experience.
The financial services industry is no different, but due to the stringent nature of the regulations, it has been a slow adopter of new technologies and the private cloud was seen as a more palatable option as compared to public cloud.
“That’s all changed now. Since the COVID-19 pandemic, the main public cloud providers—AWS, Azure and Google Cloud—have seen rapid growth within their financial services portfolios. Companies like IBM that have very specific hybrid cloud offerings are also seeing tremendous growth in this space,” explains Mani Nagasundaram, Head of Strategic Initiatives, Financial Services at HCLTech.
The growth of public cloud deployments in financial services has exploded due to improved cloud resiliency and security from providers, in addition to the lure of significant cost savings, which could be up to 30%, according to Nagasundaram.
Financial services organizations are at the beginning of their public cloud journey and there is a huge opportunity for growth. But the next stage of this transformation will require cloud providers to offer contextualized or industry-specific services that help solve the unique challenges of the industry.
The regulation of financial services driving industry-cloud
Unlike many other industries, financial services are highly regulated.
In addition to being for-profit businesses, financial services firms have a huge responsibility towards their consumers. These firms conduct transactions and manage risk on behalf of their customers and are hence answerable to the regulators and the governments in the jurisdictions that they operate in. In many cases, banks are systemically important to a country’s economy. Their success or failure can have a big impact.
An example of an impending regulation on the financial services industry is DORA, or the Digital Operational Resiliency Act. This act defines the resilience financial institutions will need to have when operating in the European Union (EU), including new incident response and third-party risk requirements.
Regulations such as this and the earlier GDPR that governs the handling of consumer data, influence the way financial institutions view cloud offerings.
“Regulations will effectively push firms towards embracing industry-cloud, which can handle these requirements, and a hybrid multi-cloud world, where financial firms have the ability to pull back workloads if something goes wrong with one cloud provider and move to another one seamlessly,” says Nagasundaram.
Explaining the challenge of meeting the requirements of regulations like DORA when it comes to the cloud and the IT ecosystem that supports financial services, Nagasundaram says: “In most other industries, the core system that supports every aspect of the business runs on a standard ERP from companies such as SAP or Oracle. However, in financial services there are no industry standard platforms that support the entire business. Every financial institution has a plethora of core platforms for different functions; some could be external platforms and the others could be homegrown applications that service a particular function or domain within the bank or other type of institution. The complexity is significantly higher when you look at the IT landscape of financial institutions.”
This is a very specialized industry and cloud providers will need to adapt significantly to service the needs of financial services customers. To take the core workloads of financial institutions to the cloud, public cloud providers will have to evolve and become more industry focused and build additional capabilities that are relevant to the industry.
Contextualization of cloud services in a standardized world
Currently, “the cloud industry was focused on extreme standardization for delivering services,” says Nagasundaram.
“That’s what the cloud providers have done and that is what they were meant to do. But now, to get more core or sensitive workloads onto their platforms and into the cloud, they need to implement changes to the standardized platform with a view of becoming more industry specific. In financial services, for example, cloud providers are having to put more controls in place that satisfy the increasing scrutiny of the regulators,” he continues.
Nagasundaram points to firms such as IBM and Microsoft, that have shifted their focus to industry specific cloud offerings. IBM acquired a regulatory consulting company, called Promontory Financial Group, which specializes in the writing and auditing of financial controls for IT systems, and this helps ensure they comply with the needs and regulations of the financial services industry. Microsoft similarly has made acquisitions to boost their industry credentials in Financial Services and have built their own industry cloud offering.
Recognizing the need for contextualized cloud services, cloud providers are building specific customizations and controls on their standardized platforms, which will help them seamlessly operate in the complex financial services environment.
For example, IBM Cloud for Financial Services has over 800 pre-built controls that are specific to financial services in different jurisdictions. Leveraging their knowledge of the industry and the relationships with the regulators they can offer their customers a functional industry cloud that is constantly kept updated with the changes in regulations.
“The current landscape is one of standardization across the ecosystem, but we’re starting to see the emergence of industry specific capabilities being added to the cloud, so that financial services institutions can consume these cloud services and capabilities without having to build them on a custom basis on a standard platform,” adds Nagasundaram.
Industry cloud will help leverage the promised power of the new oil (data) in financial services
Increasingly, financial services are embracing the potential of real-time data and insights across the front, mid and back office. The industry is also adopting cloud-based data platforms, which are ideal for all the needs of the data-driven enterprise–volume, velocity, variety and veracity.
As the “data on cloud” platforms are getting ubiquitous in adoption, HCLTech believes that the industry-specific clouds will empower and elevate the approach by bringing in industry data models, data sovereignty and data controls in line with creating a domain driven eco-system across the entire value chain of the banking process–especially bringing in a customer-centric approach to data, insights, controls and privacy.
The future of industry-cloud relies on independent software vendors
Industry-cloud and the contextualization of services is still evolving.
The hyperscalers are beginning to work very closely with independent software vendors (ISVs) and fintech companies that have a focus on financial institutions.
“These fintech's and ISVs control a huge amount of spend within financial institutions and when they’re onboarded onto cloud platforms, the cloud offering for financial institutions becomes even more powerful,” says Nagasundaram.
He adds: “ISVs will play a significant role in supporting contextualized, Software-as-a-Service (SaaS) offerings that are increasingly being adopted by financial services institutions. As the ecosystem evolves, cloud consumption will increasingly be driven by the ISVs and hence they become important players in the evolution of industry clouds.”
HCLTech is working with all these hyperscalers, fintechs and other ISVs to help customers in their digital transformation journeys, helping them secure their infrastructure and comply with all the regulations that have an impact on their operations.