Several constraints have prevented the Financial Services (FS) Industry to move to the cloud at the same pace as other sectors in the past. However, considering the benefits that cloud can offer and consumers’ new expectations (e.g., demand for more convenience, immediacy, enhanced experience), FS entities are now considering accelerating their cloud transformation. 

Regulatory constraints have hindered cloud transformation in the FS Industry - until now

Before, legal and regulatory constraints have limited cloud adoption in the FS sector. But since the establishment of a regulatory framework allowing entities based in Luxembourg to implement public cloud solutions, there has been a steady increase in the level of adoption of Cloud solutions. According to the PwC Luxembourg Sourcing Strategies Survey, almost 70% of companies have already started (or are planning to start) their cloud journey. 

Albeit this development, the sector is still in the early steps of its cloud transformation. Most FS entities have focused on running limited experiments and migrating systems which we may qualify as “peripheral”. Indeed, numerous entities have already taken the plunge and moved their collaboration, document management or customer relationship management solutions to the cloud. However, they are not fully inclined yet to move their core business solutions (e.g., supporting their critical processes such as payment processing, consumer loan management or liquidity management).

Cloud as a catalyst for agility and innovation in the FS sector

Cloud can yield tremendous benefits, which should encourage FS entities to accelerate their cloud journey. It can unlock numerous digital capabilities for the benefit of businesses and their customers.

A key benefit of cloud is its scalability. This characteristic can be useful  for instance for banks and Financial Institutions to assess financial risks. For instance, in the case of Counterparty Credit Risk (CCR), Monte-Carlo simulations are used to model future credit risk exposure considering market evolutions and can be an extremely intensive task which requires a lot of processing power. To achieve good accuracy, the model should consider a significant amount of reliable data (e.g., future currency exchange rates, price growth for an asset). On the one hand, FS entities could leverage the scalability and elasticity of the cloud to run massive computations at a reduced cost. On the other hand, employing cloud-based High-Performance computing (HPC) and distributed processing techniques will allow us to run such computations in a much shorter timeframe.

Another benefit of cloud is the ability to foster rapid innovation. Cloud Service Providers (CSP) are known for transforming innovative technologies into ordinary services, one of them being the Optical Character Recognition (OCR). OCR can play a key role in Business Process Automation (BPA) and could be used by FS entities to extract data from handwritten documents or images to simplify banking procedures. This could for instance include extraction of fields from bank cheques, or data from bank statements and utility invoices to evaluate the ability of a client to make regular loan payments.

Furthermore, given the competition that banks are now facing, they must remain innovative. They now require the continual delivery of new and enhanced applications for their clients and accelerate their time-to-market. Application development and operations teams are required to build, test and release new applications in shorter cycles. A cloud-based DevOps approach can lead to more reliable release cycles, resulting in fewer bugs in their production environment and enabling faster deployment cycles. The automation of deployment activities reduces manual deployment tasks. Moreover, typical issues encountered due to inconsistent environments between test, UAT, staging and production can be eliminated. 

Meet ESG standards with cloud computing

Last but not least, embracing cloud technology can empower Financial Institutions to be greener and achieve their Environmental, Social, and Governance (ESG) goals. According to IDC, cloud adoption could prevent the emission of 1 billion metric tons of carbon dioxide (CO2) by 2024.

Most institutions are already committed to dramatically reduce their carbon emissions. According to PwC’s Cloud Business Survey, 77% of business leaders have implemented or are planning to start leveraging the cloud potential to contribute to the environmental aspects of ESG. Furthermore, 76% are already (or planning to) leverage cloud to improve ESG reporting.

Cloud can help Financial Institutions in meeting ESG standards in various ways:

First, cloud platforms have lower carbon emissions than on-premises data centres, as they are using newer and more energy-efficient hardware, with better server utilisation rates (and high virtualization rates). Furthermore, CSPs have set themselves clear goals to power all their cloud services with carbon-free energy.

Then, CSPs offer cloud-based tools designed to analyse and report cloud carbon footprint of their clients through automated data collection. This allows organisations to have a clear understanding of their sustainability footprint.

Cloud is a game changer for Financial Institutions and a catalyst for their business transformation. They should not consider cloud as a technology topic, but rather as a business value proposition enabled by technology. FIs should define a clear multi-cloud strategy, covering their future SaaS applications, as well as their IaaS and PaaS platforms. By building a Cloud Center of Excellence, they will support and govern the execution of their cloud strategy, define reference architectures, and put in place a governance model that provides clear rules to control access, costs, and manage security and cloud compliance.

Cloud is here to stay. It’s now time to embrace it. 

Author: Stéphane Zema, Director PwC