Financial companies, which have long been burdened by heavy regulatory and compliance requirements, have traditionally been reluctant to adopt cloud computing technologies, largely due to security and privacy restrictions. However, as the technology has matured and protection measures have improved, businesses in the financial sector are slowly but surely finding ways to utilize the cloud.
Let’s take a look at the complex relationship between the cloud and the financial sector, why these companies are making the shift to the cloud, and what value this technology brings to the industry.
The biggest benefit the cloud brings to financial services companies is as an elastic computing platform. Consider the current process for obtaining additional capacity for an existing computing infrastructure: You have to make a budget request, get that request funded, procure the actual devices and equipment, and have them installed before it’s finally ready for use. This process could take weeks, months, or even years.
With the public cloud, the same purchase of capacity can be spun up in a matter of minutes with a credit card that maps back to an operating expense budget, rather than being folded in with a bunch of capital expenses. The biggest benefit of the cloud is the ability to scale up very quickly, either computewise or sizewise, to handle new and existing projects in enhanced and unique ways.
Another point in the cloud’s favor is flexibility. Property and casualty insurance companies find themselves dealing with more third-party data sources and are using streaming, real-time data more and more. Of course, storing and consuming all that data requires a significant investment in data platforms, and these companies find themselves looking at the flexibility and elasticity of cloud providers to assist them in leveraging analytics to reduce costs and improve profitability.
Often funding this type of project—and the capacity it would require—through the capital expense budget would be prohibitively difficult, but the cloud allows these companies to enjoy some cost flexibility. While cloud is not always the least expensive option, it is less expensive than traditional processes, due to its flexibility and overall cost structure.
Many financial institutions are also deploying online solutions and applications in digital delivery channels, and cloud solutions present an interesting opportunity and value in that space, too. Suppose a company is deploying products intended to have a diverse retail base across a broad region. The major public cloud providers have mechanisms to deploy and replicate content and applications across wide channels and map bases, and financial institutions can use that broad footprint to deliver their digital services across a widely dispersed geographic area: think online banking, loans, insurance policy services, or really any service delivered over the web. Cloud providers can help deliver that content globally and replicate it so it gets delivered to the end client more quickly.
Moving to the cloud isn’t always a solution. If you went back 12 months, you would find that most financial institution compliance departments banned the use of anything in the cloud. Over the last 12 months, however, interest in the private cloud model has increased because that model alleviates many of the concerns of moving to the cloud.
Essentially, a private cloud model is when a financial institution outsources its use of a data center. A hardware provider, often working in conjunction with a major software company, owns and installs the servers and network, overbuilds to support future capacity, and then bills the financial institution on the basis of its usage. This model offers the benefit of capacity flexibility and operational expense management, and it controls where data goes to a greater degree than simply using a public cloud provider.
In terms of data security, advances have been made that allow financial firms to obfuscate data to take advantage of the large computational power of the cloud. Now these companies are able to strip out any data that is private information—they can either delete it or encrypt it—then send the data out to the cloud to perform computations and analytics, bring the data back, and merge it with the personal and secure information that never left the institution’s premises.
From a security perspective, the financial sector is getting more and more comfortable with the idea of operating in the cloud. Helping this movement along is the availability of dedicated links to public cloud providers, which allow the public cloud to act like a private extension of a data center.
If you look at the current state of public cloud offerings, there’s an oversupply of interesting products and services. Customers are just beginning to look at these offerings and take advantage of them, which represents a huge opportunity.
Google, Amazon, and the other public cloud providers have also built some incredibly fast private fiber-optic networks to feed their giant infrastructures. If financial organizations start thinking of that giant server and network infrastructure as their own asset, one that can be leveraged to deliver services without having to worry about the cost of dedicated data centers, then the future for the cloud and the financial sector is bright indeed.
Learn more about how data science is transforming the financial services industry, and check out this presentation in which Liberty Mutual compares using cloud solutions to using its legacy on-premises infrastructure.