Cloud Adoption in Financial Services – Benefits, Challenges, Key Considerations

The growing regulatory demand for enhanced transparency, rising capital requirements, increasing focus on customer experience, and many others are the driving forces behind cloud adoption in financial services. In recent times, the cloud has emerged as the fundamental element to modernize finance core processes, optimize infrastructure and operations (I&O), and accelerate digital transformation.

As per the McKinsey study, by leveraging cloud services effectively, Fortune 500 financial institutes could possibly generate an additional $60 billion to $80 billion in annual profitability by 2030^[1]. This significant intersection of financial services and cloud adoption presents cost-saving benefits and operational efficiency. In this blog, we focus on the core benefits of cloud adoption in financial services industry. We also provide solutions to address common challenges faced during cloud migration. Additionally, we outline key considerations and a foolproof process for a successful transition to the cloud.

Table of Contents:

• Benefits of Cloud Adoption in Financial Services
• Challenges Faced With Financial Services Cloud Adoption and Their Solutions
• Key Considerations While Adopting Cloud For Financial Services
• The Process To Follow For Financial Services Cloud Adoption
• Why Choose Rishabh Software To Accelerate Cloud Adoption In Financial Services
• Frequently Asked Questions

Cloud, with its inherent capabilities, allows banks and financial institutions to tap into various peripheral benefits. These range from promoting customer engagement to prioritizing system resilience, which is difficult to achieve with legacy IT infrastructure and operations that often struggle to scale up agility and innovation in response to changing business needs.

In this section, we will address the key benefits the financial services industry can leverage by adopting & migrating to the cloud.

Increased Flexibility and Scalability

Banks and finance organizations face mounting pressure to match evolving customer demands, adapt to new regulations, and integrate emerging technologies. With the advancement of operations, all entities, including customers, stakeholders, regulators, and investors, emphasize personalized experiences, transparency, and agility.

Cloud adoption in financial services industry enables rapid development and launch of new products, services, and seamless technology integration. Financial institutions can leverage the cloud to easily provision computing resources like virtual machines, storage, and databases based on changing needs and workloads.

Fortified Security and Risk Management

The financial services industry is highly regulated and sensitive so data security is a key concern that cannot be compromised. Besides offering scalability and flexibility, cloud service providers also prioritize data security that empowers banks and financial institutions with a security-first approach.

Cloud computing in banking services involves implementing robust security measures, including highly secure data encryption techniques for confidential information, EMV compliance through tokenization, granular access controls, and regulatory flexibility. Additionally, it enables financial services to implement data backup practices and automate backup and recovery mechanisms to protect against accidental data loss, corruption, or cyber threats.

Enhanced Customer Engagement

Cloud computing offers financial services to develop customer-centric and end-to-end digital strategies.  Financial services institutions have evolved significantly, with customer engagement becoming a pivotal element in determining their success. By integrating cloud in financial services sector with advanced analytics tools, financial institutions can leverage data to tailor product offerings, services, and recommendations. Moreover, cloud solutions facilitate CRMs that provide a 360-degree view of customers, allowing for more personalized marketing and innovative customer experiences.

IT Cost Optimization

Relying on traditional on-premise IT infrastructure comes with many limitations, including low adaptability, expensive upkeep of equipment, and disruptive downtime. In contrast, cloud adoption in BFSI offers significant opportunities for IT cost optimization. The pay-as-you-go model allows financial institutions to pay only for usable resources such as storage, power, and subscriptions. In addition, cloud migration in financial services enables efficient IT infrastructure management, reducing IT overhead and cost optimization of application development and maintenance. Further, the ability to scale resources on demand leads to major cost savings.

Cloud services are enablers of innovation and digital transformation in the banking and finance sector, especially when combined with technologies like AI and data analytics. However, despite the business-critical cloud benefits, financial services institutions struggle to capture their full value.

In this section, we will address the key challenges faced by financial services while adopting the cloud and provide you with solutions to overcome them.

Data Security

Data security challenges while migrating to the cloud in a financial services organization are common yet critical concerns, as we know this sector operates in a highly regulated environment. Moving sensitive data to the cloud can introduce complexities in ensuring compliance with data residency requirements, privacy laws like GDPR, and industry-specific regulations like PCI-DSS.

Solution:

To address data security concerns during cloud adoption, financial institutions should implement robust, multi-layered security protocols. These may include data encryption, granular access controls, and regular security audits conducted by reputable third-party organizations. Additionally, partnering with cloud service providers that prioritize security and offer compliance certifications can provide added assurance.

Integration Complexity

Financial services institutions often have complex structures, operation workflows, and legacy systems, which can make integrating cloud services or platforms a significant challenge. Seamless integration is crucial to ensure smooth operations and minimize disruptions during the cloud migration process.

Solution:

It is advisable to partner with a specialized cloud software development company that prioritizes advanced and seamless integration strategies. Their expertise should be in bridging the gap between legacy systems and financial cloud solutions.

Cloud Outage

Cloud outages are a major concern for the banking sector as they impact critical functions, causing operational disruptions that are difficult to manage and can potentially damage the institution’s reputation. Additionally, slow internet connections can hinder customers’ online activities, leading to lost of customer trust. Many times, cloud outages result in data inaccessibility, and data backup and recovery processes become time-consuming to conduct.

Solution:

To mitigate the risks associated with cloud outages and ensure operational resilience, financial institutions should implement robust business continuity and disaster recovery plans. This procedure includes strategies such as multi-cloud deployment, on-premise backups, and redundant network connections.

Every financial services company will likely have a unique approach to cloud adoption. However, some key considerations can ensure a smooth and successful transition. Let’s explore more on these key considerations:

Security and Compliance

While pursuing financial services cloud migration, security and compliance should be a vital consideration due to the sensitive nature of the data. Financial institutions should comply with industry regulations and standards to safeguard customer data against data breaches, cyberattacks, or data theft. Thus, while transiting to the cloud, financial institutes should prioritize a three-pronged security approach: keeping data secured (through encryption), complying with regulations, and prime data residency.

Risk Management

Risk management and compliance issues have become a broad concern beyond information security in the financial sector. Shifting to the cloud comes with multiple risks including financial risk due to market uncertainty, operational risk, regulatory compliance, and other risks.

To counter these risks, key stakeholders, including IT, security, operations, compliance, and every business line must align their roles through governance, rules, and practices to identify, assess, and mitigate these risks. Financial institutions can accelerate internal support timeframes for cloud-based IT application migrations by synchronizing risk management and compliance across divisions.

Performance and Operational Management

The cloud services provider will operate and manage the infrastructure of financial services organizations daily based on a service level agreement (SLA). To avoid operational disruptions, establish SLAs that align with your financial offerings, services, regulations, and organizational requirements. Focus on the process of how the cloud manager operates and functions in order to mitigate future operational and performance risks.

People and Change Management

Modern IT and financial service organizations operate within dynamic environments characterized by market updates, emerging regulatory issues, organizational shifts, and other inevitable changes. Therefore, every financial and banking sector company requires a clear and transparent change management process. While cloud service providers handle routine tasks like updates, bug fixes, and security audits, it’s critical to understand their people and change management methodologies and ensure they comply with your organization’s policies when adopting cloud technology. An effective change management approach reduces disruption, enhances security, and improves compliance.

In the financial services sector, the possibility of migrating mission-critical apps and business functions to the cloud was once an ambitious goal. Today, it is a pressing need and a permanent reality for this industry.

So, if you want to embark on the path of cloud migration in financial services, follow the process below:

• Examine current apps, systems and processes to build an inventory, verify dependencies, and establish stability for the target state.
• Determine the key apps suitable for cloud adoption and establish strategies defining how the migrations will be implemented.
• Use key criteria to bundle apps & schedule migration events in alignment with business needs & blackout windows.
• Understand your infrastructure’s unique risk exposure & risk tolerance and then define cut-over tasks to ensure readiness.
• Follow platform-specific best practices & use reliable file-transfer tools to mitigate the risk and maintain data integrity.
• Implement cloud adoption by orchestrating run-book tasks and verifying key checkpoints alongside post-certification.

We are a trusted cloud software development company specializing in developing and deploying robust cloud-based solutions tailored for the financial services sector using AWS, Microsoft Azure, App Engine & Azure SQL. We empower financial institutions to leverage the true potential of the cloud in digital transformation through outcome-driven strategies. Rishabh Software helps financial companies of any size transform their businesses and boost operational efficiency by leveraging a cloud-first strategy.

We can also help you with next-gen fintech software solutions for a wide range of use cases, from financial transaction management solutions to fraud prevention systems.

Our Success Story

A leading US-based client sought to revamp their existing accounting system by incorporating cutting-edge technology to ensure it meets contemporary standards. With expertise in accounting software modernization and analytics, we helped the client modernize the accounting software into a consolidated cloud-native application by utilizing Microsoft Azure and Power BI technologies.

Challenges:

• Complex Legacy Systems: The existing legacy applications were highly complex, slow, and disparate.
• Integration Challenges: The legacy system struggled to integrate with new technologies.
• Inflexibility: The existing legacy system failed to adapt to changing business needs.
• Absence of Advanced Data Analytics: The existing IT system needed advanced analytics capabilities.
• Data Mismanagement: Poor management of audit and historical data.

Our Solution:

• Re-engineered finance software with Azure & Power BI for enhanced asset-based lending.
• Legacy data migrated to Azure, merging core functions into a consolidated application.
• Developed a data warehouse using Azure Synapse Analytics to streamline data management.
• Utilized Power BI for diverse finance data visualization and reporting based on KPIs.

Key Benefits Delivered:

• 100% visibility into business operations
• 95% increase in employee efficiency
• 98% improvement in IT system performance

Learn how our Accounting Software Modernization efforts helped the client mitigate associated risks and ensure business continuity & sustainability.

Q: How can financial services providers simplify cloud operations?

A: Simplifying cloud operations in financial services is key to business continuity in order to compete in the dynamic market. Financial services can leverage managed services, the power of automation, and infrastructure as code (IaC) and implement them with emerging technologies in interactions with cloud operations like AI, data analytics, and others.

Q: How can financial services firms accelerate the cloud shift?

A: Financial services firms can accelerate the shift to cloud by following the below-mentioned steps:

• Assessing their cloud readiness
• Developing the outcome-driven cloud strategy
• Prioritizing the workload and focusing on cloud migration
• Collaboration with vendor partner
• Invest in training and upskilling

Q: What are the significant trends of cloud adoption in financial services?

A: Major trends in cloud adoption in financial services are listed below:

• Hybrid and Multi-Cloud Strategies
• AI and Machine Learning
• Fintech and Open Banking
• Data Analytics and Insights
• Customer Experience

Footnotes:

1. https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/clouds-trillion-dollar-prize-is-up-for-grabs