The advent of COVID-19 forced most industries to speed up their plans to service their clients or end customers more effectively – and in many cases, this meant accelerating their digitization strategies. The financial services industry has been no different, and during the pandemic, we witnessed an industry that responded rapidly to new demands and has emerged stronger and nimbler. One of the key technologies that assisted the financial services industry to address clients’ shifting expectations during the pandemic has been cloud services, neatly summed up by Microsoft as “the delivery of computing services – including servers, storage, databases, networking, software, analytics, and intelligence – over the Internet (‘the cloud’) to offer faster innovation, ‑ flexible resources, and economies of scale.”
The Wipro Full Stride Cloud Services study was compiled using responses from 1,300 C-level executives and key decision-makers across 11 industries, of which 26 percent were financial services related – specifically, banking, insurance, and capital markets, such as wealth advisory and asset management rms. This article uses data compiled from close to 340 financial services executives to get a better understanding of their perspectives regarding how cloud computing impacted their businesses during the pandemic.
One of the key questions those executives were asked was how COVID-19 affected their operations. Four key implications of COVID-19 were cited by financial service leaders-
1. Elevated the priority to using the cloud to improve customer experience.
2. Realized the importance of cloud usage to make processes more efficient and agile.
3. Increased willingness to make cloud investments.
4. Elevated the priority of cloud to improve business continuity and resilience.
A larger picture emerged as we combed through the data survey. As companies emerge from the pandemic, management teams are embedding the cloud into their growth platform for the future. For digital leaders, the cloud provides a data-enabled, interconnected foundation to support enterprise-wide business activities and work‑ on solutions, while leveraging the use of artificial intelligence (AI), the internet of things (IoT), and other transformative technologies.
State of Play: What firms are doing now- Executives were asked to look back two years and ahead two years and reflect on what have been the most significant areas of investment, both technologically and organizationally. Reviewing the previous two years, here is what they said:
Future State: Where firms see themselves in two years
While IT spending, in general, is expected to remain static, cloud spending is likely to increase. Firms are broadly expecting cloud costs to rise in the 1-10 percent range. The cloud is fast becoming more intelligent, hyperconnected, and pervasive. For the immediate future, financial services firms are focusing their cloud goals more on business growth and revenue on generation than reducing expenses. Leaders said they expect to make their most significant cloud investments over the next two years in product development/ R&D (62 percent), cybersecurity (48 percent), business development and sales (42 percent), and procurement/supply chain (44 percent). Although the survey does not provide specific project details, working with our clients offers more information about where investments might be made.
Benefits and other dividends-
In a crucial shift, the cloud is moving from an efficiency play to a growth driver. The survey results give financial services leaders real numbers around the benefits they can expect from a well-executed move to digital. Almost all clients report revenue benefits over three years due to using the cloud to create new products, services, and business models. These gains average at around 4 percent, although about a third of firms anticipate revenue increases of up to approximately 15 percent.
As one banking executive commented: “Customer relationship management using a PaaS solution via cloud technology is our organization’s most successful revenue-generating cloud initiative.” Other executives pointed specifically to automation as a cloud enabler that provides quick returns. They touted wins with automation in policy governance (insurance), claim settlement and operational efficiency (insurance), and market settlements and clearing processes (capital markets) as effective ways to generate more returns.
Financial services organizations tend to see cloud investment paybacks over 24 months or less from a data center perspective and for migration of legacy systems. For modernization and cloud-native development, results tend to be more variable and spread over a more extended period. The biggest eye-popper: return on investment (RoI) generated from the cloud multiplies tenfold as firms advance on their cloud journey. While beginners see a 6 percent annualized cloud related RoI, this grows to 44 percent for advancers and 59 percent for leaders. “Cloud adoption,” an insurance leader said, “gives [us] the ability to convert fixed infrastructure costs into variable costs.”
Obstacles: Navigating the negative-
The survey provides insights into where companies are most likely to ‑ y into headwinds on their digital journeys. Lack of a cloud strategy is the biggest challenge facing companies across the board, financial executives say. Some 44 percent cite this as a common obstacle hindering their transition to the cloud. This remains a hurdle throughout the cloud journey for beginners (45 percent) and leaders (36 percent), as companies strive to take their strategy to a higher level. Why does this happen? Our client’s experiences show that cloud technologies have traditionally been applied at the department level to fi x specific issues, such as improving data entry speed and accuracy or automating back-office workflows. Internal IT groups favored keeping these digital solutions on-premises or in a hybrid mix. Thus, cloud initiatives became buried in departmental silos.
The result: roadmaps that chartered a digital journey for the entire organization were slow to happen, if at all. In our recommendations below, we stress the importance of developing an enterprise-wide cloud strategy and roadmap early in the transformation process, one that details technology choices, governance measures, and spending priorities, and that moderates other potential battlegrounds that can dilute implementation.
The survey also underscores that training, recruitment, and retention are fundamental competencies that need careful and early planning or risk snagging a cloud shift. An average of 25 percent of financial services firms said “limited access to cloud skills and talent and need for training” were serious impediments to successful cloud implementation. Cloud leaders are already increasing their digital capabilities. 52 percent of cloud leaders develop teams and skills to drive cybersecurity in the cloud, 48 percent provide cloud training to IT and line of business staff, and 43 percent roll out change management strategies to facilitate cloud transformation.
CONCLUSION The next few years will be critical for determining leadership in many industries, including financial services. COVID will eventually fade, but the remainder of this decade will only see disruption escalate. That is because the pandemic unleashed new consumer expectations. They want 24/7 access to their financial resources from anywhere, and products hyper-personalized to their lifestyle choices. For financial services organizations to meet those requirements and grow, they will need to be driven by data, faster to market, and agile and resilient in execution. Some industry giants will fade. Some unknown companies will ascend. Products not even conceived before today will win the hearts and wallets of financial consumers. The companies best designed to compete during this turmoil will be crowned new industry leaders. And those companies will be thriving in the cloud.
– By Peter Kennedy, Partner at UK Capco