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David Donovan

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David Donovan - Sapient Global Markets

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What Kendrick Lamar can teach Financial Services about Cloud Adoption

27 September 2016  |  2225 views  |  0


A freeway, a gas pedal, and a peace of mind. To the cloud I go, cloud I go

Kendrick Lamar Cloud10

When Kendrick Lamar wrote his lyrics “To the cloud I go, cloud I go,” he might as well have been referring to the financial services industry’s shift to the cloud.

The cloud is not one size fit all, but the drivers of cloud adoption are similar: cost pressure, risk reduction and the need to leverage agile technology to meet the demand of changing market dynamics.

But while reducing IT infrastructure costs and effectively managing IT operating risks highlight the key benefits of cloud adoption, firms need to overcome the challenges tied to security risk, data privacy and legacy data  before they have the peace of mind to hit the freeway and gas pedal.

Defining the Cloud

I see my clients in different stages of their cloud adoption journey from the initial phase of defining the cloud (i.e., “Why should I Care?”) to a more concrete state of tackling challenges as they work through their roadmap.

However, with a slew of different options and  fintech players involved with cloud adoption, it is sometimes hard to get past the noise to either get on or stay on the right path to take full advantage of the cloud.

To better grasp cloud computing, you first need to have an understanding of the four types of cloud computing you will hear throughout the journey to optimize your business applications: 

 

  1. Infrastructure as a service: IaaS vendors provide services for provisioning, accessing, monitoring and managing core infrastructure components such as storage, networking and compute. Organizations can provide resources on-demand using self-service applications, and more easily scale and downsize infrastructure deployment as needed. An example of an IaaS vendor is Amazon Web Services (AWS).
  2. Platform as a service: PaaS provides higher level abstractions like databases, middleware and Hadoop as a service. PaaS helps reduce IT cost and effort to provision and maintain such services, while accelerating time-to-market of business applications leveraging these services. Examples of PaaS include Amazon Elastic MapReduce ), Amazon Redshift, Amazon Relational Database Service (RDS).
  3. Application platform as a service: aPaaS is a form of PaaS that provides a platform to support application development, deployment and execution in the cloud. The goal is to enhance developer productivity by providing frameworks and accelerators for building specific types of applications (e.g., mobile and big data analytics applications). aPaaS services builds on underlying PaaS and IaaS layers.  Force.com from Salesforce is an example of a aPaas.
  4. Software as a service: SaaS provides a constantly evolving business application as a subscription service. SaaS vendors deliver managed applications which can be assessed through web browsers, mobile devices or API calls. SaaS represents the largest cloud market. Salesforce.com, Google, Microsoft and Intuit are examples of leading SaaS vendors.

 

Financial Services firms leverage one or multiple combinations of the above services as they get cloud enabled.

Why Cloud?

The next path on the freeway to cloud adoption includes identifying what the areas of your business that could benefit from a move to the cloud.

Non mission critical applications such as CRM ( Salesforce), to HR ( Workday/PeopleSoft), to IT service management (ServiceNow), are well on their way to the cloud through the financial services industry.

Factors which are making companies migrate to Cloud are:

  • Agility - Faster, simpler, cheaper ways to scale up and down infrastructure.
  • Cost Savings - No upfront capital required for servers and storage. Companies are looking beyond labor for cost saving and Cloud helps companies move from a capital expenditure to operating expenditure models. 
  • Standardization -  Standard technology, implementation lifecycle leveraging DevOps.
  • Accessibility and Business Continuity - Applications can be accessed from anywhere, anytime offering capabilities for fault tolerant approach to continuous delivery.
  • Innovation – Ability to create and test innovating technologies without extensive time and cost of setting up infrastructure.

Cloud Adoption Hurdles

The opportunity to become more agile and lower the cost of operation isn’t without its challenges. As a highly regulated industry built on trust, the need to ensure cloud adoption that enhances rather than inhibits your ability to meet complex and expanding regulation as well as protect customer data is crucial.

These areas in particular are already impeding a larger move to the cloud throughout the industry:

Data, security and privacy are  some key challenges financial services firms have to identify and mitigate to ensure cloud adoption doesn’t compromise customer data and privacy.

Ageing internal infrastructure and applications can complicate cloud migration.  With data locked in legacy systems, moving to cloud without having mechanisms to access, leverage this legacy data will result in minimal value of cloud adoption benefits.

Integrating internal systems and processes with cloud-based platforms will require dedicated resources to maintain appropriate governance and develop standards to meet these complex requirements.

Regulatory and Compliance requirements such as Dodd-Frank in the US and the European Union’s European Market Infrastructure Regulation (EMIR) have put a large regulatory and compliance burden on financial institutions. The cloud offers an opportunity for institutions to meet these requirements without heavy capital investment but also requires that the cloud migration have clear regulatory guardrails put in place.

People challenges within organization impede the adoption of cloud. Be it lack of skills, resistance to change  status quo and lack of senior leadership sponsorship.

Lastly, complex pricing models and service-level-agreements (SLAs), create another obstacle, particularly for a move to the public cloud, as they are multi-tenant environments.

Roadmap to the Cloud

Cloud adoption started as an infrastructure exercise in the back office to help manage costs. Today, it has the potential to reach across the middle and front office to offer flexibility throughout the industry with a well thought out process and plan. 

As firms explore and wok through their security privacy and regulatory concerns,  customer facing, private data  will remain within private clouds for the foreseeable future within financial services.

Ultimately, the path to the cloud will be in phases:

  • Cloud adoption will continue to increase, facilitated by  standardization of service offerings.
  • Increasing bandwidth will make additional use cases viable for the cloud (e.g., “Follow the moon” strategies will allow consumers to take advantage of lower night-time electricity costs).
  • Cloud services will become more commoditized, and actively traded at exchanges. (e.g., Deutsche Börse Cloud Exchange has already completed specifications for IaaS products).
  • Back-office applications will lead the way toward wider cloud adoption with support  applications already moving to cloud or in the process of migration.
  • The middle office will follow in adoption benefitting from elastic compute capabilities.
  • Front-office trading will be pre-dominantly on-premise but will support an Open Platform API to unlock the potential for data.
  • Latency-sensitive functions like equities trading will benefit from private infrastructure near exchanges.


Cloud is an enabler for the evolving digital landscape. For financial services, the right framework for adoption, data privacy and customer trust will help the industry to have the peace of mind to move to the cloud. To the cloud we go, cloud we go!

 

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I am a member of the Sapient Global Markets leadership team, responsible for setting operational and marketing strategies for the firm and managing relationships with top global investment banks.

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