Why are financial services slow to adopt the cloud?

Like most competitive markets, organizations in the financial services sector want to adopt cloud and cloud services for the efficiencies and agility they provide.

However, with potentially tens of thousands of virtual machines, multiple operating systems, and even legacy mainframes to consider, platform-level changes can be slow and difficult to implement. In this article, we explore some of the challenges financial services firms face when transitioning to the cloud, why the need to transition is becoming more urgent, and offer tips for overcoming obstacles to achieve a successful migration.

Yet, despite those incentives to stay with legacy infrastructure, increasingly financial services providers can no longer afford to stick to those systems as the market becomes increasingly competitive.

Despite the fact that the cloud can reduce complexity and cost for financial services providers, the actual transition to the cloud often has adoption challenges associated with it. Some of the most specific factors for financial services are: 

• Cost: Migrating legacy applications can be a costly and time-consuming process, particularly for organizations with a large and diverse technology portfolio.
• Data security: Financial services firms are subject to stringent regulatory requirements, and replacing legacy systems must follow strict rules to protect information.
• Resilience: Similar to compliance, infrastructure failure for financial services providers has high financial implications. Legacy systems are proven and stable, and moving away from them must factor in the risk of change.
• Integration: Legacy systems in the financial services industry are often highly complex and intertwined, making it difficult to replace individual components without disrupting the entire system. Over time, financial services firms may have customized legacy systems to meet specific business needs. Replacing these systems could mean losing these customizations or requiring significant time and resources to replicate them in a new system
• Data sovereignty: In many regions, regulations require data not to cross territorial borders, and costs related to keeping cloud solutions within a territorial region have additional costs related to them.
• Knowledge and expertise: Financial services firms may have a deep knowledge of their legacy systems and may rely on in-house expertise to maintain and manage these systems. Replacing these systems could mean losing this institutional knowledge or requiring significant retraining of staff.

Every transition of a portfolio of applications to modern cloud platforms must be judged by its cost, the resources required to enact it, and the risk related to it.

Here are some reasons why it’s no longer viable for financial services to stay with legacy systems:

• Increased competition: The financial services industry has become increasingly competitive, with new entrants and innovative technologies disrupting traditional business models. The addition of greenfield competitors who started digital and cloud-native—along with incumbents that have completed the transition—mean legacy systems may no longer be able to provide the agility or efficiency needed to compete.
• Customer expectations: Consumers now expect the same level of convenience and ease of use from financial services providers as they have with other industries. Legacy systems may not be able to provide the user experience customers demand, potentially leading to lost business, especially since it is now easier than it was previously for end-customers to switch institutions.
• Security and compliance: Although security and compliance is a reason that many legacy systems remain, they can also be a reason they need to be replaced. Legacy systems are often updated less often, or not at all, and may not meet the latest security and compliance standards, putting financial services firms at risk of data breaches or regulatory violations.
• Cost and complexity: Maintaining legacy systems can be expensive and time-consuming, as firms must continue to invest in outdated technology and manage complex, interconnected systems.
• Inability to innovate: Legacy systems may lack the flexibility and scalability needed to support innovation and the development of new products and services.
• Talent limitations: The expertise to work on legacy systems is aging out of the talent pool, as new workers are trained on newer, cloud-native systems, and the older workers age toward retirement.

With incentives shifting in urgency, financial institutions need to reduce technical debt, use the cloud to simplify operations, and have partners that can help them get the full value of the cloud.

The rise of new cloud technologies has made it possible to incorporate multiple generations of technologies together on a single cloud platform and operate them across both on-premise and off-premise data centers. This means that organizations can adopt standard operating models and practices across generations of technologies so that they can scale cloud adoption.

How can financial services providers simplify cloud operations?

The best way for financial services providers to simplify the technology estate is by meeting complexity with consistency.

Consistent features and services
Since most financial services providers moving to the cloud will have applications across on-premise and off-premise data centers, it’s important they have consistent features wherever they are deployed. Equally important is that the services can work together, even if they are provided by different vendors and deployed in different places.

Consistent compliance and security
With components spread across different environments, it can be difficult to keep them all synchronized. An integrated approach for controlling components’ configuration, ensuring that all of the environments consistently meet the same security and compliance requirements, is the only way to reduce the overhead to a manageable level.

Consistent data control
When data resides in a cloud and it needs to be removed (either to fulfill compliance or just for financial reasons), many cloud tools lack the flexibility to do so quickly. Cloud providers often make tools available for moving data into their environment, but do not provide much help in moving that data out again. Financial services providers need cloud partners and tools that give granular control over where data is stored and accessible.

Consistent cost management
When it comes to adding applications or new users to an existing environment, the process is typically straightforward. Nonetheless, in complex cloud environments, this can often result in cloud sprawl with usage, which causes an increase in abandoned, unneeded, or forgotten infrastructure. This issue quickly multiplies, leading to unnecessary expenses and decreased efficiency. To avoid this problem, it's essential to have a cloud platform and tools that give you consistent management across environments to reduce this excess cost.

How can financial services providers take a platform-based approach in the transition to the cloud?

Not all cloud solutions fit the financial services industry’s need for consistency across hybrid cloud environments. Oftentimes, certain solutions are designed to be deployed on a single cloud provider or work inconsistently across different environments.

A platform-based approach means that the entire infrastructure is manageable while ensuring workloads are consistently reliable, available, and implemented with security in mind. At a baseline, this means running workloads in containers that can be moved across the cloud environment. But further than that, it means having tools to automate tasks related to those containers, as well as analytics and remediation tools that give oversight to highlight issues before they start requiring human intervention.

Red Hat offers products, partners, and services designed to take a progressive approach to the cloud. This offers the consistency that financial services providers need to help control and simplify their complex technology estate while accelerating the migration of applications. 

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