The Cloud & FinTech: Advances in Financial Services Technology in the Age of Cloud

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3 September 2020
Daniel W. Latimore

While public cloud adoption has grown in many industries, cloud adoption among financial institutions (FIs) has been slower. Regulations within financial services (driven by the amount of confidential information FIs handle), silos impacting risk & compliance, and the need for ecosystem management have contributed to the hesitating pace of cloud migration.

Today, cloud computing within the financial services field is accelerating. Institutions are evaluating methods of handling compliance, ecosystem, risk, and security issues in an effort to determine where and how to deploy cloud computing to meet business needs. The COVID-19 pandemic (as addressed in Celent’s “Survive to Thrive: Industry-Specific Technology Responses to COVID-19” resources and on-demand webinars) is also driving innovation and adaptation.

The Shape of Cloud Adoption

What shape will cloud adoption take in financial services? Let’s look at what’s developing across each of Celent’s coverage areas.

  • Capital Markets: In what our analyst Brad Bailey calls an “inflection point in the capital markets,” cloud implementations are becoming an increasingly common and key feature of infrastructure. With experience, investment banks, broker dealers, exchanges, asset owners, and asset managers are uncovering unexpected sources of value and discovering agility from a technology, services and commercial perspective. Digitalization and growing volumes are driving the need for more automation and straight through processing in trading; cloud and intelligent automation are driving the evolution of reconciliation solutions. Celent’s research is also evaluating the short- and long-term implications of COVID-19 on cloud trends already underway in trading.
  • Corporate Banking: While payment volumes continue to grow exponentially, the rapidly changing payments ecosystem demands that technology keep up. New real-time payment schemes, the changing face of payment market infrastructure, migration to ISO 20022, and cloud-ready platforms are driving new entrants into the payments technology space. Banks are also driving business value with APIs, the critical technology enablers that facilitate legacy modernization for real-time, digital cloud, mobile, and social applications.
  • Retail Banking: Flexibility became increasingly critical in the wake of the COVID-19 pandemic, speeding efforts to leverage cloud in order to develop payment infrastructures. Cloud implementations are now increasingly common. With experience, banks are uncovering unexpected sources of value and discovering new drawbacks that they’ll need to address. One thing is clear: cloud is here to stay. As the trend of cloud native and cloud ready bank systems (those designed in and for the cloud) accelerates, financial institutions must be prepared with thorough, accurate considerations for public cloud migration.
  • Risk & Compliance: Efficiency, automation/AI, and remote support—including cloud-based delivery—will be key for compliance operations. In financial risk management, usage of next generation technology and emerging digital approaches are expected to increase in order to optimize risk modelling. Cloud's agility, flexibility, and low cost can solve many challenges in operational risk and financial crime compliance activities such as KYC, AML, and surveillance. Solution providers are evolving their solutions to help banks achieve the benefits of cloud while overcoming regulatory and operational hurdles related to data privacy and security issues. Increasingly, solutions deployed in the cloud can assist with operational challenges, such as those often caused by the existing siloed, slow, and manual processes; most solutions will be heavily automated, with many in the cloud, in the coming 5–10 years.
  • Wealth Management: Collaboration between financial institutions and vendors is critical to adapt to the unprecedented pace of change driven by COVID-19. In the near term, firms must leverage the resources at their disposal, from CRM to CLM to compliance to human resources, in order to engage and support their clients. Cybersecurity and collaboration tools for remote work will be immediate needs. Longer term, the cloud and APIs will serve as levers for improved costing and flexible consumption of data. Differentiation in the current environment will require a forward-looking outlook; cloud adoption will improve time to market for new products and services. Innovative wealth managers are deploying cloud for cutting edge insights and to facilitate digital experiences; trends include accelerating toward multi-cloud deployment architecture and embracing cloud for enhanced data analytics and AI capabilities, supported by the efficiencies of low latency cloud storage.
  • Property & Casualty Insurance: Senior insurance executives are increasingly interested in moving apps to the cloud, as our analyst Karlyn Carnahan recently told Insurance Innovation Reporter. The ability to be completely virtual insurers will require new architecture. A growing focus of legacy transformation is integration strategies and the cloud, with APIs, microservices, and DevOps all impacting an insurer’s legacy modernization programs.
  • Life & Health Insurance: In this quickly changing space, cloud integration strategies are a key consideration for digital transformation, including whether, when, and how to transition to the cloud. As with property & casualty insurance, how and when to move forward with legacy modernization programs is a main consideration for decisions about moving to the cloud.

We hope that you’ll explore the broad cross-section of Celent’s cloud coverage available on this hub page. Additional information about Celent’s upcoming analysis of cloud technology’s impact on financial services is available in our research agendas.