The Expert view: Financial services, digital transformation and the cloud

The Expert view: Financial services, digital transformation and the cloud

Digital transformation is well underway across sectors, with cloud services forming an integral part of that shift. As with other businesses, banks find their customers are more likely to be living digital lives, Justin Nesbitt of Equinix said at the opening of a Business Reporter Breakfast Briefing at The Ritz Hotel in London.

He told attendees – all senior technology experts from across the financial services sector – that the issue is how to remain close to your customers as this trend increases. All types of organisation face challenges in this regard but financial services companies are dealing with a particular set of circumstances.

Cloud drivers and challenges

As with most sectors, attendees said their businesses were embracing the cloud because of a need to cut costs and increase operating speeds, to meet demands from customers and to match offerings from disruptive startups.

One attendee, from the insurance sector, pointed out that the make-up of an IT team will be significantly different before and after a cloud move. The skills required differ considerably, so the business needs to be ready to recruit new staff and train-up the old ones.

The financial services industry, in common with others, is expecting the amount of data it produces and processes to continue increasing. Personalising experiences, leveraging Open Banking, and employing the Internet of Things to create new products and services are all opportunities that will require data capabilities. Attendees said their companies had no desire to be in the data management business.

However, several delegates said they were often constrained by partners, some of whom are not even close to ready for digital transformation but who still need to be supported. Likewise, many customers still rely on old channels, such as cheques. So, as banks open new channels, they still have the overhead of managing the old one.

The shadow of legislation

However, though these issues were acknowledged by attendees, all were considered minor concerns compared to the primary obstacle: regulation. The types of data that a financial services company can put in the cloud, and the type of cloud they can put it in, are frequently constrained by regulation.

Differences in legislation across the world can mean that a bank can, for example, offer smartphone cheque-scanning in the US but not in the UK. It can streamline its back-office functions with cloud applications only to find that they need to be adapted for a handful of countries – something that cloud providers themselves have been slow to support.

Then there is the fact that regulations change rapidly – and therefore so do company processes to meet regulations – but the IT department might find itself in a multi-year contract with a cloud provider that it can’t change. As one attendee said, the regulator is unlikely to be impressed by a promise that you will comply as soon as your cloud contract ends.

Looking towards solutions

Removing obstacles to cloud adoption that result from regulation is not something financial services companies can do by themselves. As things currently stand, an entire ecosystem is necessary to deliver digital transformation but not every part of that ecosystem is equally responsible in the eyes of the regulator.

One attendee suggested the situation would be easier if cloud service providers were subject to the same legislation as financial services companies. Firstly, this would ensure that in the event of a breach the regulator would be able to call on the financial services company and the cloud provider for an explanation. Second, the cloud service is more likely to be compliant with regulations from the outset, avoiding the need for financial services companies to carry out expensive modifications.

Ultimately, attendees agreed this is a problem that can only be solved through dialogue. Most attendees said they already talk to regulators frequently because this helps them to ensure they are complying with regulations before any problems arise. The larger companies also have public policy executives, who talk to legislators about how regulation holds them back.

In future, cloud services providers will play more of a role in these conversations and, some suggested, banks might also need to start talking to each other more and presenting a case, as an industry, for regulation that supports digital transformation. Meanwhile, the industry knows how it wants to put digital transformation in place but remains in a challenging position. 

By Shane Richmond

Copyright Lyonsdown Limited 2021

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