Capgemini, the fintech firm helping others transform and accelerate their businesses, has published a new financial services report revealing how companies have embraced cloud tech. It has found that 91 per cent of firms have begun their cloud journeys, which is a huge increase from 37 per cent in 2020.
However, this has not translated to cloud adoption according to the Capgemini Research Institute’s World Cloud Report –Financial Services. While more companies are starting to embrace cloud and more investment is being poured into the tech, only a minimal portion of core business applications have been moved to the cloud for over half the firms.
“For today’s financial services organization, ignoring the cloud is simply not an option. Moving to the cloud requires looking beyond a cost-savings approach and being centered around driving innovation to gain a competitive edge,” said Ravi Khokhar, global head of cloud for financial services at Capgemini.
Eighty-nine per cent of financial services executives believe that a cloud-enabled platform is crucial for delivering the agility, flexibility, innovation, and productivity necessary to meet escalating business demands. Yet, most firms are still not cloud-native and instead tend to opt for a ‘lift and shift’ approach that hinders the full benefits of cloud-based systems’ scalability and flexibility advantages.
Implementing cloud at scale is critical to harvest full value of AI investments
Nearly two-in-three financial services firms (62 per cent) have started using artificial intelligence (AI), with a target to utilise it across the full value chain in the next two years. Despite their potential, AI, including generative AI and machine learning technologies, are yet to be used at scale in the financial services industry and therefore are having limited impact.
The research found that to date much of the cloud investments have been applied towards modern, user-friendly, AI-based, customer-facing applications. Fewer investments are made in back-end core processing systems that are providing inputs to consumer-facing front end applications, resulting in a poor overall user experience.
According to the report, the migration of internal core systems to suitable cloud-enabled ecosystems and platforms is critical to unlock the complete potential and efficiency of AI and generative AI. In return, this will spark the emergence of a wider range of business growth opportunities over the coming years. Today, in banking and insurance, firms are testing their generative AI use cases across customer onboarding, credit analysis, financial planning, policy renewals and to support client servicing models.
“As companies race to adapt and implement generative AI, they need to be mindful that there will be no future AI benefits to be realised without cloud-enabled systems. By defining and establishing an effective cloud target operating model at scale, the full potential of these transformational new technologies can be harnessed,” adds Khokhar.
Cloud plays a pivotal role in driving ESG impact
With 95 per cent of firms now factoring ESG impact into all key investment decisions, the cloud also has a pivotal role to play in aiding the industry’s effective management of ESG reporting to help achieve their sustainability goals. It can equip them with essential ESG impact measurement tools, as seen by 51 per cent of financial services firms citing improved transparency and reporting measures.
Cloud providers are starting to develop solutions that can track and report scope 1, 2 and 3 level emissions, offering comprehensive visibility into a firm’s carbon footprint across business functions and products.
Risk management and customer relationship management dominate cloud migration priorities
Industry executives surveyed in this report across health insurance, life insurance, capital markets, payments, retail banks and wealth management, identify risk management and customer relationship management (CRM) amongst their top three areas ripe for early cloud adoption.
In wealth management, over half (60 per cent) cite benefits in relying on cloud-enabled fraud detection techniques to make data-driven risk-management decisions. Likewise, more than one-third of retail banking executives (39 per cent) emphasise transitioning complex credit risk management to the cloud to shorten loan processing decision time, through cloud-enabled automated processes and integrated analytics.
Insurers are exploring data-driven personalized value-added services, such as roadside assistance, to align with evolving customer preferences. Among life insurance executives, customer relationship management (55 per cent) stands out as the highest priority for their cloud journey.
Data security and cost challenges constrain effective cloud adoption at scale
Despite significant advantages, industry executives express concerns about the challenges associated with cloud migration. Two-thirds (68 per cent) identify data security as a barrier to adopting cloud solutions, while 51 per cent point to high operational and transformation costs as potential obstacles. An additional 45 per cent mention regulations, such as data sovereignty, as another factor that may pose challenges.
Recently, the Digital Operational Resilience Act (DORA) mandated that financial institutions subject to European Union (EU) regulations must rigorously implement, document, and uphold the requisite systems, protocols, and tools to provide sufficient reliability, capacity, and resilience.
Sovereign cloud, which provides secure and independent cloud computing infrastructure to countries to help them ensure data privacy and sovereignty, is therefore fast becoming a common deployment option. To address these concerns, 39 per cent of executives reported a preference to leverage public cloud, 49 per cent prefer private cloud, and the remaining 12% think hybrid cloud is the best option.
