How the Cloud is taking over financial services
It may not be apparent to customers, but there is a revolution happening in how financial services store and manage their data. Here, IT services consultancy’s Elenjical Solutions’ Tinu Elenjical explains why opting for the cloud is so important.
You would have had to have your head in the clouds not to know that ‘The Cloud’ is where it’s all at these days. Whether that be storing all those holiday snaps you took on your mobile in Apple’s iCloud storage plan or downloading the latest Marvel film on Netflix, it’s all stored in…eh…somewhere we’re not quite sure where.
The cloud is not just for keeping us amused, big business relies on it and cloud computing itself has become big business. Amazon Web Services (AWS) is the biggest, and in 2020 its net sales alone topped $386 billion, up a cool $100 billion on the previous year. What cloud computing boils down to is that you allow someone else to host your computing infrastructure, which you then access via the internet. This differs to how it is done traditionally. In the past – and for many, still the present – companies would host all their own services and data on their own servers, and these would be managed by in-house IT teams.
Companies – including financial services firms – are seeing the attraction of adopting the cloud. While in theory the biggest providers – AWS and GCP (Google Cloud Platform) – are public clouds, in reality, the small piece that companies buy are entirely private to them, and ultra-secure.
Greater flexibility – at a cost
The cloud is not cheap, in many cases it can be more expensive than current ways of storing and managing information. But it has several advantages. The first is that the cloud lends itself to elasticity – you can expand or reduce the amount of space you need incredibly quickly. This is far faster than the months it takes companies to install new servers to their infrastructure – servers they are then stuck with if demand on the system reduces.
Financial services firms are quite rightly under intense pressure to keep their sensitive financial and customer details secure. Does putting it on the cloud put that at risk? And are they even allowed to by regulators? The answer is: it varies – from country to country – and from types of financial firm. Insurance companies, for example, are more willing to place their data on the cloud, while banks tend to place only certain data on the cloud, keeping their most sensitive data on in-house servers. Some of the thinking behind this is due to hesitancy on the part of regulators. Even where the servers that run the cloud are physically based can also play a part, with laws in place that may prevent, say, financial data from customers in South Africa being stored on cloud servers based in Ireland. But as cloud providers continue to open data centres in more and more locations, this problem is likely to reduce over time.
Another advantage of hosting financial information in the cloud is, ironically, its security from loss. This is because company information is never held in just one place. Cloud companies such as AWS have robust replication procedures, duplicating securely the information multiple times over several regions. So, if one data center hosting your data suffered from a natural disaster, say, the data would still be accessible and securely held by other data centers far from danger.
Secure – but vigilance still required
The cloud is secure – AWS regularly spends more than $1 billion ensuring its systems are not compromised – far in excess of any individual company’s security budget. But that doesn’t mean that company information is 100% safe. The cloud may be secure but individual companies still need to have their own security measures in place (E.g. the latest patches installed) so as not to introduce vulnerability into the system.
Despite the earlier comment about cloud computing often being more expensive than traditional storage methods, there is one important financial advantage worth mentioning. And that is that setting up IT infrastructure in-house is expensive, involving capital expenditure that sits on the balance sheet for years. Using cloud computing, on the other hand, has relatively little up-front costs, and the ongoing storage space rental can be paid as operating expense from the P&L. This lower up-front cost of system set-up helps to lower the barriers to entry, makes new product experimentation less risky and faster, and will likely increase the levels of competition in the financial services industry and beyond.
Increasing cloud cover
Financial services firms are by nature (and necessity) incredibly cautious. Most have already invested in their own in-house IT infrastructure, but the attraction of moving to the Cloud increases as that infrastructure ages and nears replacement. Many finance firms are dipping their toes in the market and migrating peripheral services to cloud storage. Covid-19 and the rise of homeworking is also accelerating the move to remote servers.
In the not-too-distant future it won’t be a question of ‘Do I keep my existing IT or move to the cloud?’. Instead, it will be: ‘Do I buy new IT or move to the cloud? The demands on systems that innovation and security brings with them means companies must have competitive IT infrastructure. The risks of not moving to the cloud will soon become as great as doing so. At the moment moving to the cloud is offering a source of competitive advantage to those brave enough to move. If the current trend continues that advantage will disappear and the cloud will be a basic entry requirement for being in the financial services market. The cloud is coming, it’s just a question of when.