Why will the finance sector become a new aspect of cloud in the next decade?
Ritesh Jain, COO- HSBC
Finance leaders are considered the guardians of the economic environment they are part of. They are tuned to the minutest of changes that affect the economy. As we knock at the doors of 2020, they are quick to realise that there is a marked shift in the way the economy operates and what the customers expect out of banks. That there is a need to decrease the ever-widening gulf between the increasingly digitised customer and available financial products and services. And, they are willing to embrace technology that helps them do this better.
CHANGING FACE OF THE ECONOMY
Even though Brexit is being perceived as the major shift in Britain’s economy, over the past couple of decades the economy itself has changed fundamentally. Already 20% of UK adults are part of the gig and sharing economy, which is expected to be 33% by 2025.
Technologies like artificial intelligence, machine learning and big data are impacting the way companies function and drive profits.
More and more retailers are moving online because that is where the customers are. Ever-increasing digitisation of customers has meant that more and more people are accessing financial services on their personal devices.
It's not that the economy is changing culturally and technologically only. It is changing environmentally as well. To counter environmental threats, the economy is shifting to low carbon. It will need an infrastructural investment of more than $90 trillion over the next 10 years globally. The UK being one of the global finance leaders, it is expected to lead the way.
DISRUPTION IS ALREADY UNDERWAY
New players in the market like Monzo, Starling, and OakNorth question why finance should be any different from other sectors when it comes to providing excellent user experience.
These companies have been dubbed fintech, and rightly so. Without having the baggage of old IT infrastructure to carry, they are adopting cloud services to provide that experience. Use of cloud also enables them to provide new products and services as well as reach those who had been out of the purview of Finance till now.
According to a Deloitte report, new hires in finance sectors must be data scientists, business analysts, and storytellers, besides being finance experts.
CLOUD TECHNOLOGY IS THE FUTURE
Digitisation always means more data, which needs to be stored before it can be used further. Cloud technologies offer a cheaper and more effective way of saving and processing data collected. Hence digitisation has become synonymous with cloud technology.
Various studies have emphasised the need for finance to embrace cloud and utilise the benefits they offer.
Many large banks have already moved most of their non-core activities like customer care, personal, HR, etc. to the cloud. So why not the core functions? It is now imperative to look at the various options offered by cloud technology and its feasibility.
Access to expertise and Analytics: Cloud service providers are experts in the services that they offer. Their clients get access to analytics and expertise without investing in-house. Cloud models are now maturing and they can be trained to accommodate the strict regulations of the finance sector.
Cost Optimisation: Due to the economics of scale, cloud service providers, especially the bigger ones, help in reducing IT infrastructure costs. Depending upon the size of operations, this reduction could be anywhere between 30% and 50%.
Associated Risks: It is not that technology can be the solution to everything. Because it is fraught with its own problems.
Regulation Compliance: The biggest issue in moving financial services to the cloud is that the services and service providers are not yet equipped to accommodate the strict financial regulations prevalent in the economy currently.
Cyber Security: All types of data, especially financial ones, are already constantly under cyber threat. This is a matter of deep concern and what prevents most of the banks and other finance firms to stay away from the cloud.
Transfer of Control: As all data is available with cloud providers, a huge amount of control automatically passes to them. And a few leading cloud providers may end up monopolising it. Finance leaders are not yet comfortable with this transfer of control.
THE BALANCING ACT
It is essential to find a balance between the advantages offered by the cloud and the risk associated with it.
First and foremost, the global conversation must be initiated around the need for migrating financial services to the cloud. As cloud migration will be more of a cultural shift before it is a technological one, all stakeholders need to be on the same page.
With disruptors leading the way, it cannot be allowed that smaller banks and fintechs embrace the cloud without understanding all the implications.
While cloud service providers must build more robust systems that can sustain cyber attacks, finance regulators also need to factor in the changing requirements and modify regulations accordingly.
WHAT THE FUTURE HOLDS...
That cloud is the future for the growth of the finance sector is a foregone conclusion. Efforts have to be made to make it as smooth and free of operational disruption as possible.
It is the responsibility of larger banks to be tuned in customers’ changing expectations, predict their demands and use technology as the enabler to meet those expectations. In the process, they must also focus on building expertise in-house and share it with smaller banks to move the finance sector forward.
What do you think? What is preventing you from migrating your operations to the cloud?
Ritesh Jain will be in attendance at our CIO Event at Said Business School, Oxford University. To learn more about this event, click here.