How Cloud Technology is Pivoting from Cost Efficiency to Strategic Digital Transformation across Financial Services

Cost effectiveness, scalability, and agility are paramount to all businesses faced with the challenges of a rapidly evolving digital landscape. When the pandemic arrived, businesses sought ways to pivot to digital systems, and cloud-enabled technologies emerged as the go-to solution that seamlessly addressed their growth and objectives.

In the financial services industry, especially with payment firms, there has been a big spike in the adoption of these cloud services: from 32% in August 2020 to a whopping 96% in August 2023. The Covid-19 pandemic made digital payments more crucial for everyone. These firms had to upgrade their systems to handle the increased demand for online transactions by embracing these cloud-enabled digital tools. It established cloud as the cornerstone of a successful digital business.

Thanks to this widespread adoption, as revealed in Capgemini’s World Cloud Report 2023 , only a mere 5% of financial services firms reported having no plans to adopt cloud in the future in 2023. This is a significant decrease from the 50% reported in 2020.

For financial services firms, adopting cloud-enabled solutions during their transformation journey is now becoming essential to gain a competitive advantage. Indispensable, even.

Regrettably, however, they are far from unlocking the full potential and power of this technology.

Today, we speak with Ravi Khokhar , Global Head of Cloud for Financial Services at 凯捷咨询 , to assess the challenges and benefits for the industry with migrating their core applications to the cloud and the strategic shift needed for an innovation-powered future.

Cloud technology regulations are quickly evolving to match digital advancements. For instance, EU's Digital Operational Resilience Act (DORA) marks a pivotal moment for the cloud in financial services. Yet, a high rate of cloud adoption does not imply that firms have achieved full-scale or even effective migration. Why is that?

Banks and insurers often face challenges modernizing their core-processing applications and integrating them with cloud-based systems and emerging technologies. This disconnect between core and non-core applications in the cloud breaks the service chain, negatively impacting operational efficiency and customer experience. The long-term strategy for firms involves shifting on-premises core back-office functions to the cloud to unlock its full value. But financial services firms face hurdles in fully migrating core applications to the cloud due to concerns over data security, the challenge of integrating legacy systems, and the significant upfront investment involved.

Our recent World Cloud Report confirms this. Despite significant advantages, financial services executives say cloud migration is challenging. More than two-thirds of respondents (68%) cite data security as a cloud adoption obstacle, while 51% say high operational and transformation costs will present hurdles. Another 45% say regulations may pose difficulties.

Performance considerations, potential vendor lock-in, and cultural resistance further contribute to the hesitancy observed. Overcoming these obstacles requires a strategic approach that addresses security, regulatory compliance, legacy system integration, and internal cultural shifts associated with cloud adoption.

It goes without saying that 2023 is the year artificial intelligence went mainstream. How does the integration of artificial intelligence, specifically generative AI, depend on the cloud?

Throughout my career working in the financial services sector, I can tell you that the industry is no stranger to the capabilities of artificial intelligence. In fact, many insurers have tested the technology years before it became the center of attention it is today. The future of generative AI is intrinsically linked to cloud-enabled systems, with the cloud serving as a scalable foundation for AI integration. Nearly 2-in-3 financial services firms are already in the initial stage of AI adoption, but there will be no generative AI future for firms without cloud-enabled systems.

For example, ABN AMRO , the third-largest Dutch bank, boosted employee productivity by using the cloud to introduce automatic summary generation for client conversations. This innovation, powered by advanced technology like natural language processing (NLP), streamlined client communication, and the cloud's scalability and efficiency played a key role in making it happen.

Firms need to update how they handle data and use the cloud more effectively. Modernizing platforms is more than just shifting data to the cloud; it involves rebuilding them to work well with different types of data—small, big, structured, unstructured—and with both batches and continuous streams. Good-quality data is crucial for using AI effectively and advancing technology.

The current way many organizations operate may make it hard for advanced AI to work well, as it requires a deep understanding of all company operations. So, making all operations cloud-friendly is the best way in today's world.

How can the industry bridge this gap?

While many firms have embraced cloud technology, extracting its full value remains a challenge. The common adoption of a "lift and shift" approach to migrate processes to the cloud often limits the realization of comprehensive benefits.

Moving to a composable platform offers a strategic solution to overcome cloud migration challenges in the sector. The platform addresses key hurdles by enabling firms to seamlessly redefine processes, integrate cloud-enabled applications with back-end functionalities, and leverage pre-built components.

The phased approach provided by the composable platform allows firms to prioritize functionalities, aligning with specific cloud migration needs, such as risk management for banks and policy servicing for insurers. By adopting a composable platform, financial services firms can effectively navigate the complexities of cloud migration, addressing challenges related to data management and cost overruns while ensuring a smooth transition to modernized, cloud-enabled operations.

When it comes to financial services and cloud, ultimately, it's about the journey, shaping a future where innovation and potential intersect in the cloud.