Financial services in the cloud: Catalyst for change has been saved
Financial services in the cloud: Catalyst for change
Financial services (FS) firms must harness the cloud as a catalyst for fundamental change. As the gap widens between financial firms that have modernized and those that haven't, there is a risk in doing nothing. More FS firms are realizing the benefits cloud computing brings to their business. How and why are they doing it?
Technology as a driver for change
We live in an increasingly dynamic world, where innovations and disruptions are almost a daily occurrence. One such example is the often-cited analysis that shows that the average company's tenure among the Fortune 500 has dropped from 75 years in the mid 1960's to just 15 years today. The increasing pace of globalization and technology development is often cited as the chief contributor to this decline.
Of course, other factors are certainly at play, including mergers and acquisitions, and in the case of the S&P 500, the committee's decisions about the companies that should be listed in that index. Indeed, some have asserted that the longevity of companies actually comes in waves, and that we're in a current period of lengthening corporate maturity. If that's true, it would suggest that another period of shortening lifespans is in the offing. A recent QuickLook Blog post focused on this subject as well. QuickLook analyzed the largest financial institutions from 2007 to 2018 and noted the changes seen since the financial crisis. If and when another period of rise-and-fall comes, I believe that technology will be a main driver.
Eliminating dependency on legacy core applications
For financial companies to harness new opportunities, they can't continue to be dependent on the legacy mainframe-based core applications that are responsible for much of the transaction processing and account recordkeeping that are at the heart of these businesses. Indeed, when asked about the most important technology initiatives within their company, almost 60 percent of respondents from G7 countries in a recent Ovum survey cited modernizing their core as one of their top three priorities. Yet most CXOs are not incented to modernize their core, given the complexity and the length of time required to get it right. It's also becoming increasingly difficult to find people who know how to work on these systems. A quick search on Indeed.com using the search term "Cobol programmer," yielded only 1,400 job openings. This in contrast to listings of jobs requiring more modern development languages, such as 80,000 Linux programmers, 77,000 with Java experience, and 40,000 with knowledge of C++. There is risk in doing nothing, as the gap between financial firms that have modernized and those that have not continues to widen. Those that don't modernize may find themselves on an island, with no good way to absorb the change coming their way.
Financial services firms see many benefits from the cloud
Modernizing technology has yielded many benefits, including democratizing access to technology and lowering the cost of innovation. But it's hard and expensive work, so firms are seeking opportunities to fund transformation, including writing off bad assets and starting with a clean slate. At the core (no pun intended) of these trends is the cloud. More than just a different application-hosting model, the cloud, with its massive scale of computing, storage, and network capacity, can help control costs in a low-margin environment while streamlining compliance with stringent regulatory requirements. More financial services firms are realizing the benefits the cloud can bring to their business.
Beyond that, we see a number of use cases beyond what's described above. Firms are leveraging the cloud as an analytics platform to drive real-time customer insights and segmentation as well as an enhanced overall digital experience. Data may be accessed more easily to support these objectives through the use of application program interfaces (APIs) and microservices, while enabling a true "single view of the customer." Institutions are also experimenting with ways to deploy emerging technologies like chatbots and blockchain-based data stores utilizing cloud-based platforms. Employee performance tools and human capital management solutions are likewise seeing cloud-based deployments for improved performance.
More broadly, the cloud is becoming a means to an end. Ultimately, it will help drive firms to change their operating model, embrace different ways of working, and even rethink the business they’re in. In many ways, the cloud can be the foundation for the fourth industrial revolution, which is driven by the convergence of computing, data, artificial intelligence, and universal connectivity. Financial institutions everywhere are reinventing their IT environments through a combination of open source, open standards, virtualization, containerization, and a new approach to application development. While this trend has been building for several years, the move to the cloud will clearly continue. Ovum's forecast for spending on cloud services in financial services shows growth of about 11.5 percent per year between 2018 and 2021,1 and that could be a conservative estimate.
What is your firm's position on the cloud?
Do you see it as another form of application hosting, or are you seeing transformative benefits emerging from your cloud initiatives?
Join the conversation on Twitter @DeloitteFinSvcs.
1 Camille Mendler, Ian Brown, Hansa Iyengar, Vinay Gupta, John Madden, “IT Services Market Forecast: Cloud Services, 2015-21,” Ovum Informa, May 11, 2017
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.