How Is Finance Adopting Cloud Technology, and Why Has it Taken So Long?
The 2008 financial crisis jumpstarted the financial sector’s IT revolution — years later, both tech-savvy startups and fixtures of the finance industry are turning to the cloud in search of a competitive edge.
Several weeks ago, we discussed the healthcare industry’s failure to maintain an up-to-date storage strategy. While advertising, sports, and other sectors have been transformed by big data and the cloud, healthcare has lagged behind and missed out on opportunities like advanced disease prediction.
Much like healthcare, finance is only now beginning to react to the dominance of cloud computing in the world of IT. The delay is all the more surprising in this case, as the sector has always revolved around some form of data storage. Luckily, the times are beginning to change in the world of banking and investment: new banks have challenged long-standing institutions by employing cloud computing, setting off a chain reaction that could lead to widespread adoption.
What’s Causing the Lag?
As is the case with many instances of delayed IT adoption, resistance to cloud can partially be attributed to bulky legacy systems. Banks that have relied on the same processes for years have little incentive to overhaul their systems unless challenged by other institutions who already have. As CloudTech’s Rahul Singh explains, it is new banks without the burden of legacy systems that have spearheaded the recent trend of cloud implementation.
But these outdated systems aren’t the only factor that has slowed the cloud’s momentum. The Cloud Security Alliance recently surveyed individuals across the broader financial sector to discover their reasons for resisting adoption, and the results point to shared skepticism of cloud providers’ security measures. 100% of respondents who haven’t implemented any form of cloud technology cited security concerns, and 43% cited concerns over public breach notification.
The same survey showed that regulatory restrictions played a role in 71% of decisions to stay clear of the cloud. Much like healthcare, finance is highly regulated, which often complicates cloud-based data storage strategies. However, regulation may also be driving the more recent adoption of cloud throughout the industry. As BAI’s Robert Olson, Colin Lacey, and Ashwini Almad recently explained, “regulators’ latest demand for higher bank capital levels” has reenergized the “cloud conversation at many banks.”
After the 2008 financial crises, changes in regulation made it easier for new banks to form. Since then, new banks like Metro, Starling, and Hampden have risen to challenge long-time players in the industry. Born into the 21st century, these banks bypassed many paper processes and jumped right to cloud.
These banks started a trend that hasn’t stopped: from 2012 to 2013, the number of banks planning to implement cloud quadrupled. Compared to banks across Europe and in emerging markets, U.S. banks continue to show greater resistance to cloud computing, but this trend will likely change as a more complete range of cloud-based solutions are developed.
Why should banks convert to the cloud? Doing so has the potential to drive profit and revolutionize their internal operations.
Roughly 70% of the processes within financial services organizations can be converted to cloud within the next three to five years. In a capital market industry where milliseconds of delay can lead to millions in lost profit, those companies that fully capitalize on the computing power of cloud could see huge profit margins. In addition, warehousing data in the cloud can streamline the growth process, making it indispensable for quickly growing banking institutions.
However, none of these potential benefits will see the light of day without proper management of cloud computing set-ups. As with any industry, companies within the financial sector need to optimize cloud spend and minimize the potential for overprovisioning. Our products make that simple. TeamQuest Predictor helps companies determine their exact cloud compute needs, and Vityl Monitor ensures that their infrastructure remains healthy throughout its lifespan.
The finance industry is changing, and cloud computing seems destined to play an integral role in the process. With the right IT infrastructure, banks can stay one step ahead of the competition and secure their profit margin well into the 21st century.