Cloud Adoption in Financial Markets

Cloud Adoption in Financial Markets

Cloud should simply be better, faster and cheaper than legacy platforms and on-premise installations. Yet, cloud adoption in financial markets is still slow. Why?

Adoption of the cloud is widespread cross industry, which is reflected in the tech giants’ cloud-based revenues consistently producing year-over-year high double digit gains. Just look at Amazon, Microsoft and Google. Cloud should simply be better, faster and cheaper than legacy platforms and on-premise installations. Yet, cloud adoption in financial markets is still slow. Why?


Regulatory Compliance and Cyber Security are the Biggest Concern

Ever present concerns over regulatory compliance, cyber security, privacy and investment in expensive, existing on-premise infrastructures are among the main reasons that hold back banks and asset managers from truly embracing the cloud. However, like a tanker ship slowly turning, things are beginning to change.


Reasons to Move to the Cloud

During the second half of 2018, there was a new-found willingness to experiment with cloud as the level of security that is now available has provided more comfort, as well as offering cheaper running costs than incumbent infrastructure. The big tech giants making a push into financial markets has also helped. Particularly Google, which was a distant third place in cloud market share behind Amazon and Microsoft but is now playing catch-up. Interestingly, a lot of financial market players are leaning towards the Google Cloud Platform – or GCP – which offers its leading machine learning and data analytics out of the box. Google’s whole value proposition is based on selling technologies that they use themselves, while GCP service and support is very hands-on compared to its competitors.


Even the FCA (Financial Conduct Authority) has given its seal of approval to cloud vendors and is “seeking to leverage cloud in order to improve service value and control risk” and they “see no fundamental reason why cloud services cannot be implemented in a manner that complies with [their] rules”. This progressive view towards cloud, by one of the world’s leading regulatory bodies, further helps to drive cloud adoption. In turn, this helps to drive innovation across huge banking digital transformation projects through faster time to market, more agililty and better scalability.


Yet there are still big variations in adoption, with some banks a lot further down the road than others. Goldman Sachs, an early adopter of the cloud (and a “technology company”, according to its previous CEO), has significantly cut its technology staff overhead by using cloud computing. While in the asset management space, any new hedge fund starting out will always prefer cloud.


One of the big advantages of cloud is the increased scalability and elasticity – servers can ramp up and scale down on demand. Plus, easily accessible machine learning algorithms, sophisticated predictive data analytics and better cyber security than existing infrastructure are also a big advantage. Financial market board and C-suite executives have come to realise that the big tech giants do a better job at data and cyber security than they ever can. Even the CIA use AWS, citing that using the cloud was “the best decision we’ve ever made”.


Cloud vs. On-Premise

In the old world of on-premise, financial market institutions bought and deployed physical infrastructure while employing people to test and monitor it. In the new world, this will all be done in the cloud with front-to-back cloud platform management and managed services and integrated software becoming standard.


However, it’s not quite as simple as just switching operations onto the cloud. With billions already invested in physical infrastructure and hardware, legacy technology is not going to be jettisoned just yet. Unfortunately, banks and asset managers cannot unlock value from their data if it’s held in unconnected legacy systems sitting in different departments and locations. So how can the financial industry with its legacy problem realise efficiencies and benefits of the cloud?


Hybrid – the New Normal?

Some of the perceived issues around cloud are already being addressed. In the meantime, one of the favoured hosting models now for large banks and funds is the ‘hybrid’ model, which offers the best of cloud and on-premise hosting. This means there could be multiple public and private clouds, as well as on-premise hardware in a datacentre. Out of the leading tech vendors Microsoft was the first to offer this in July 2017Google Cloud in July 2018 and the biggest cloud hosting provider AWS relented in November 2018. For large financial market institutions hybrid cloud is the obvious choice and looks like the way the financial industry is heading.


Can Banks and Asset Managers Help FinTechs?

Taking ipushpull as an example, this cloud-based technology company could have grown even faster in 2018 but was held back by information security reviews and delays in deployments, as cloud applications had to be re-configured to work with legacy on-premise infrastructure. A willingness to adopt a cloud or hybrid approach would significantly mitigate extended infosec and onboarding and help to foster innovation not only across financial market institutions but in the thriving FinTech ecosystem.


Embracing the Cloud – Not Just a Technology Decision but a Business Decision

Looking forward, financial market organisations, services and technology providers will need to be agile and nimble to reinvent themselves and drive new business models. Utilising the cloud will be a competitive advantage. Attitudes and education towards the perceived risk of the cloud are changing, computing power grows, machine learning and data analytics add value to the business. Taking the above into account, as costs continue to fall – the cloud will continue to rise.


By Matthew Cheung, CEO, ipushpull

Make possibility reality

Become an IA FinTech Member
and see where it takes you.

Login to your account