Historically, banks have been hesitant and slow to embrace benefits of the cloud, with the reliance on legacy systems and applications offering a hard-to-let-go safety cushion. On one hand, it isn’t surprising given the financial services industry has the most stringent regulations and extremely high penalties for potential data breaches. On the other, however, banks need to come to terms with the fact that cloud security has moved forward by leaps and bounds and is now a safer option than keeping all infrastructures on-premise. There is a greater need for banks to move past their risk aversion and cloud security fears and accelerate their digital transformation and cloud adoption to meet changing consumer needs and expectations and maintain their competitive advantage.
Security concerns are still hindering cloud adoption
It wouldn’t be fair not to acknowledge the fact that banks have tried to adopt cloud in the past, the hesitation does not stem from a lack of trying. Some progress in modernising legacy IT environments has already been made. In fact, on average, financial organisations place 39% of their IT infrastructure in the cloud according to Telehouse Research, projected to rise to 44% within the next 5 years. Whilst driven by the clear benefits of reliability and scalability, further cloud adoption progress is being hindered by ongoing security, privacy and data sovereignty concerns.
The potential risks, negative publicity and fines can be significant and compliance with regulations like MIFID II and Sarbanes-Oxley must be put at the top of the priority list, making many reluctant to implement significant infrastructural shifts.
For financial institutions, banking information is extremely sensitive, valuable, and vulnerable. It certainly needs to be guarded with the strongest security measures. The problem is many finance professionals are yet to understand that traditional on-premise infrastructure can actually pose greater risks and exposure to sophisticated cyberattacks. Cloud providers are continuously demonstrating their commitment to security, implementing a multitude of measures like zero trust verification, data encryption and access controls to ensure secure connections and full visibility into the data stored in the cloud.
Achieving a good balance between seizing cloud benefits and ensuring adequate levels of security and control over IT systems is not a mean feat. For a highly regulated financial industry, there is however a solution that addresses security concerns and allows acceleration of digital transformation initiatives. Rather than steering towards a cloud-only mindset and shifting all assets, systems and application to the cloud, banks should adopt a hybrid approach, with for example a mix of cloud and colocation. This would allow them to identify and take the right level of risk and establish what to outsource, when and how. By hosting their IT infrastructure in a colocation data centre, financial institutions can manage their risks better, stay on top of regulatory demands and keep a lid on costs.
The pressure towards competitive advantage
In recent years, customer attitudes towards banking have significantly changed, with a demand for more personalised services greater than ever before. By working with the right colocation partner, banks can access leading cloud service providers and improve customer experience, ensure smooth integration across channels, add new digital services, all whilst creating a more resilient and secure foundation for growth. This in turn will put banks in a better position to compete with challenger brands who were born in the cloud and can leverage their agility and new technologies to improve personalisation and customer service and attract more customers.
With the current outdated legacy infrastructure, however, banks will continue to face many limitations like high costs, lack of flexibility and inability to respond rapidly to technological advancements like machine learning or artificial intelligence. They will find it difficult to meet the customer expectations of more connected and customised experience unless they shift to hybrid environments.
Adopting a hybrid approach will enable financial firms to realise all the benefits of flexibility, scalability, cost efficiency and resilience, and progress faster with innovation initiatives. A combination of colocation and cloud can facilitate the adoption of AI and ML so that banks can comfortably start competing with digitally native players. Colocation can better support the computing requirements, data processing needs and real-time analysis that AI applications require. It also enables access to a much more connected digital ecosystem of partners, including leading cloud providers like AWS and Microsoft Azure.
Enabled by cloud and colocation, many fruitful collaborations with service providers and regulators can be born to help financial firms future-proof their processes, operations and business models. Choosing a data centre partner that is on the edge of London’s financial district will reduce latency, improve the speed of transactions and delivery of online services, and ultimately, customer satisfaction.
Opening up new opportunities with cloud
While recognising no two organisations are alike, financial services institutions should be aiming for at least a 50 per cent migration to the cloud to ensure they remain competitive and relevant to customers in the near future. Choosing a provider with uninterrupted cloud access and highly reliable power provision can give leaders peace-of-mind that personal consumer information and other sensitive data can be accessed securely at all times by employees.
Alongside the security benefits and putting risk aversion aside, banks that embrace hybrid approaches will be able to uncover new opportunities for growth, digital currencies, and services. Greater IT infrastructure maturity and access to leading cloud providers through colocation will help banks digitally transform and innovate faster.
