Cloud adoption has reached critical mass. Today, roughly 83% of businesses will be in the cloud by 2020.
But while we’ve seen legal, consumer goods, healthcare, and other industries evolve with the cloud, financial institutions have been hesitant to get on board. Why? Because of a widely-held belief that on-premise applications are more secure than the cloud.
Now, banks are starting to realize that to remain competitive in a world of proliferating competition, it’s vital they become digital leaders. To do so, cloud technologies have become a key tool in sharpening that critical competitive edge.
Today, big banks are expected to grow from as little as 0% public cloud adoption to 30% by the end of 2019. That’s an overwhelming spike for an industry that still relies heavily on legacy systems dating as far back as the 1960s.
So how exactly can adoption of cloud infrastructure benefit the financial services industry? Here are four reasons why more financial institutions should make the move to the public cloud.
The cloud can help ensure the security of vital client information.
Security is a moving target. In other words, the security measures that you use today will almost never remain secure in the next few years. That’s because hackers are always looking for new ways to gain access to sensitive data—and that’s especially true when it comes to the reams of financial data housed by banks.
Fortunately, when financial organizations make the move from on-premise solutions to the cloud, they’re adding multi-layered protection of sensitive data to get ahead of ever-changing security demands. How? Because through the cloud, data is kept in centralized storage that can only be accessed through sophisticated authentication methods. Cloud providers update their systems frequently based on the latest security best practices. They’re also required to provide software patches, new encryption techniques, improved login protocols, and real-time identification of unauthorized users and suspicious activity.
Despite the increased security benefits, it’s important to address—and learn from—the elephant in the room: During the summer of 2019, Capital One—one of the earlier adopters of the cloud—experienced a massive data breach. But here’s the important thing to note: A majority of data breaches have very little to do with the cloud provider’s vulnerabilities, including Capital One’s. Through 2020, 80% of cloud breaches will be due to customer misconfiguration, mismanaged credentials or even simple human error.
The cloud improves scalability and agility.
Cloud computing gives financial organizations the means to quickly scale up—or down—alongside rapidly-changing market demands. This elasticity, for example, sets businesses up to better handle the mass amounts of incoming credit card purchases on Cyber Monday. With the cloud, a bank can easily expand to accommodate peak hours and workloads, rather than having to buy new servers to address the occasional high demand.
Coinbase, a fast-growing bitcoin wallet and exchange service, needed a better way to respond to the ever-increasing customer demand for bitcoin transactions. Scalability was critical, as they needed to expand their services globally without eating up precious engineering resources. To support their goals, Coinbase decided to deploy its new bitcoin exchange in the cloud.
Today, Coinbase has more agility and flexibility than it would have had it relied on internal, on-premise systems. And the cloud has given them the freedom to focus on what they want to do instead of what they’re able to do. With the cloud, scaling across the globe and deploying new services are never more than a few steps away. And for each new country they bring on board, they’re able to scale geographically and at the touch of a button to support more users.
The cloud offers long-term cost savings.
When you switch from on-premise to the cloud, you no longer need to invest in proprietary infrastructure. This cuts down on both the up-front capital costs associated with hardware, and the continuous costs that can hog budget just to keep hardware and software up-to-date.
The cloud also helps banks manage costs with greater flexibility, helping them to switch from fixed to variable expenses. This shift allows banks to focus on funding critical business initiatives rather than wasting investments in under-utilized equipment.
According to one report, 88% of financial institutions stated a reduction in TCO (total cost of ownership) as the biggest benefit of cloud adoption. For example, FINRA, one of the largest independent securities regulators in the United States, has now moved about 90% of its data to the cloud, using Amazon Web Services to capture, analyze, and store a daily influx of 75 billion records. All told, FINRA now stores more than 20 petabytes of data in the cloud.
Sounds expensive, right? Not exactly. In fact, FINRA estimates it will save up to $20 million annually by using the public cloud instead of a physical data center infrastructure.
The cloud boosts innovation.
A lot of industries have already realized how to use big data and analytics toward their advantage—and financial organizations are no exception. With the cloud, banks and other financial institutions finally have years’ worth of data right at their fingertips. And thanks to the cloud’s ability to quickly analyze these diverse datasets, financial institutions can make informed decisions that are both predictive and holistic.
Back in 2018, HSBC Bank announced their cloud-first strategy, with a goal to innovate faster. With more than 3,900 offices in 67 countries worldwide, they’re using data analytics to gain a deeper understanding of their customers’ needs. From this, they hope to provide them with new, customized banking features and functions designed to directly fulfill those unmet needs.
Starling Bank is another company running their platform in the cloud. Their top reason? The cloud makes innovation more accessible and less scary. Instead of devising strategies and running up bills on ideas that may not work, Starling can rent additional compute power and memory from their cloud provider to experiment with new ideas. In other words, there’s a lot less commitment of resources, so they can afford to make mistakes and learn from them, too.