At long last, cloud computing comes to financial services
The financial services industry is finally embracing cloud computing. Traditionally characterized by a reliance on on-premises infrastructure, banks and other financial services providers are undergoing a profound transformation. This paradigm shift has been driven by the need for increased efficiency, scalability, and cost-effectiveness. Cloud computing offers a flexible and scalable platform that enables financial institutions to deliver innovative products and services while managing risks effectively.
More, Faster
One of the most significant advantages of cloud computing for financial services is its ability to enhance operational efficiency. By moving workloads to the cloud, financial institutions can streamline their IT infrastructure, reduce costs associated with hardware maintenance and software licensing, and accelerate application development and deployment.
Cloud-based solutions also offer a high degree of scalability, allowing financial institutions to rapidly adjust their IT resources to meet changing business needs. This is particularly important for financial services firms that experience seasonal fluctuations in demand or need to quickly scale up operations to support new products or services.
“Since cloud services can easily scale up or down based on demand, financial institutions can easily handle changes in data processing requirements and customer activity,” Nicola Sfondrini, partner for digital and cloud strategy at PWC, wrote for Forbes.
Cloud computing has enabled financial services firms to innovate and develop new products and services at a faster pace. Cloud-based platforms provide access to a wide range of advanced technologies and tools, such as artificial intelligence, machine learning, and big data analytics. These technologies can be used to develop innovative solutions for areas such as fraud detection, risk management, and customer relationship management. For example, cloud-based analytics tools can help financial institutions identify patterns in customer behavior and tailor their products and services accordingly.
Digital bank Monzo has been using Google Cloud’s BigQuery – with its more than 2,000 data models and nearly 19 petabytes of data – to run analysis on huge amounts of data, delivering customized solutions to customers with granular insights.
“With BigQuery, we can have all the data we need to effectively make business-critical decisions and analyze the impact of complex incidents when something goes wrong. For us, this is like having a superpower,” Monzo senior staff engineer Suhail Patel told FinTech Magazine.
Replacing Legacy Systems
Legacy systems, often designed for a specific workload, can struggle to accommodate rapid growth or sudden spikes in demand. That’s where cloud platforms do some of their best work, allowing financial institutions to quickly adjust their computing resources to meet changing business needs. This agility is particularly crucial in today’s fast-paced and competitive environment, where market conditions can shift rapidly.
“Legacy systems typically use a monolithic architecture where all components of the system are intertwined, potentially in a confusing way due to years of patches and customization. These systems often run on a single server or mainframe, with outdated technology stacks that require specialized skills to maintain,” Federal Reserve Bank of Kansas City analysts wrote.
Another compelling reason for the shift to cloud computing is the potential for cost savings. Traditional on-premises IT infrastructure requires significant upfront investments in hardware, software, and maintenance. Cloud providers, by leveraging economies of scale, can offer these services at a lower cost per unit. Additionally, cloud-based solutions often eliminate the need for costly data center operations, reducing overhead expenses.
Unlike legacy systems, which can be rigid and difficult to modify, cloud platforms offer a high degree of flexibility. Financial institutions can quickly deploy new applications, experiment with different technologies, and respond to regulatory changes. This agility is essential for staying competitive in an industry that is constantly evolving.
Security Paramount
Of course, one advantage to those on-premises legacy systems was that financial institutions knew exactly where important information was and were more able to keep it secure. The sensitive customer data they handle is highly valuable to cybercriminals.
“Those are the crown jewels of an organization, their customers’ information,” Jeff Lanza, who retired after 20 years as an FBI special agent and provides talks on cybersecurity and identity for organizations nationwide, told BOSS. “If you’re not doing everything you can to protect that, you’re failing at job No. 1.”
To mitigate security risks, financial institutions must implement robust security measures such as encryption, access controls, and regular vulnerability assessments. Lanza recommends a zero-trust cybersecurity approach.
“The most important thing when it comes to information – this applies to not just computer crime, but identity theft and national security information for companies that deal with that – is compartmentalizing,” Lanza said. “No one should have access to information, either physically or on the computer, unless they absolutely need it to do their job.”
There are also regulatory hurdles for financial services providers adopting cloud technology to clear. Financial institutions must ensure that their cloud-based systems comply with relevant regulations, such as the General Data Protection Regulation (GDPR) and the Gramm-Leach-Bliley Act (GLBA).
Despite these challenges, the benefits of cloud computing for financial services are substantial. By embracing cloud technology, financial institutions can improve their operational efficiency, innovate, and reduce costs. As cloud computing continues to evolve and mature, we can expect to see even more innovative applications in the financial services industry.
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