The financial sector is undergoing a major shift where institutions are now migrating to the cloud, moving away from slow manual processes and costly on-premise systems to start benefiting from improved operational efficiency, lower costs and enhanced customer experiences brought about cloud computing.
Growing demand for cloud among enterprises is coming on the back of rapidly evolving customer expectations. This will fuel the growth of the financial cloud market, which one research company forecasts will rise at a compound annual growth rate (CAGR) of 24% between 2018 and 2028 to become a US$52 billion market.
Though the migration of data to the cloud has been an ongoing process for several years, the shift is accelerating and gathering pace, says Mark Hermeling, CTO of Alveo, a provider of market data integration and analytics solutions for financial services.
Mark Hermeling
“The whole data ecosystem [is] now migrating to the cloud … to increase scalability and elasticity, and therefore ensure an element of future-proofing,” Hermeling wrote in a post on IBS Intelligence. “It is now no longer just data management solutions and processes that are moving over to the approach. Upstream, data vendors are putting data on public cloud platforms and, downstream, application providers are doing so also.”
Data vendors and providers of applications such as portfolio management systems, trading solutions and risk and settlement systems, are increasingly pushing their products directly onto popular cloud platforms such as Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform, signaling a “seismic shift,” Hermeling says.
This trend is forcing financial services firms to accelerate their adoption of cloud computing as they look to tap into the potential benefits of embracing this environment, including a faster time-to-market for new services, the opportunity to break down silos and achieve greater operational efficiency at lower costs, the potential to leverage big data and conduct deeper analysis, and the ability to offer superior customer experiences and engagement.
Industry-specific cloud ecosystems expand
While adoption of the cloud is rising, the market is still far from mainstream adoption with cloud currently accounting for just 10% to 15% of enterprise IT spending, points out Sanjiv Gossain, Senior Vice President and Global Leader of the Google Cloud Business Group at Cognizant.
A reason for that has been firms’ reluctance to move critical business functions on the environment because these workflows are highly customized to the need of their specific industry, whether that’s regulatory compliance or a high need for data privacy.
Hence, the next growth stage for the cloud market will be industry-specific clouds, Gossain predicts. Industry clouds offer a set of tools, services, applications and configurable frameworks that are specifically tuned to one industry in particular, whether that’s claim management, virtual care, or loan origination.
In the area of cloud computing in financial services, several announcements have been made over the past year.
Microsoft announced in November 2021 the general availability of the Microsoft Cloud for Financial Services, an industry cloud designed for industry regulatory requirements and control frameworks, including multi-layered security, compliance, and trust commitments built-in. It also includes new capabilities such as analytics and artificial intelligence (AI) specifically tailored to the financial services industry.
In 2021, IBM continued to expand its IBM Cloud for Financial Services, adding new ecosystem partners and onboarding additional banks as customers, including Spanish banking group CaixaBank. IBM announced the general availability of its industry cloud for the financial sector in April 2021, a cloud platform it had been designing with Bank of America since 2019.
In November 2021, Goldman Sachs unveiled a partnership with AWS to launch a financial services data analytics and management service. Goldman Sachs’ Financial Cloud for Data targets hedge funds, asset managers, and other institutional clients, allowing them to leverage the bank’s own AI tools and applications, and access advanced quantitative analytics across global markets.
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