The deep dive: Challenges of cloud adoption

By Puja Sharma

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

Industry across all sectors is undergoing rapid transformation due to cloud computing and its associated services. With the rise of mobile banking, FinTech, and virtual transaction services from PayPal, Google, and Amazon, the banking, financial services, and insurance sector is the most active user of cloud computing. In a report by IDC, the banking sector is expected to spend $16.7b on cloud services, growing at 23% of CAGR. Despite the rapid growth and multiple cloud strategies in place, cloud adoption is slow in the banking sector.

Who is under the radar?

Banking organizations deal with sensitive data, which puts them at a greater risk for data leaks and cyber-attacks. Globally, the average cost of a data breach has increased to $3.86m, according to IBM. A single record can be stolen for $148. Cloud security remains a concern with any technology. Despite their inevitability, data security incidents can be prevented. Even though data and security are top priorities for banks, keeping up with changing compliance regulations and reporting standards shouldn’t be ignored.

Cloud computing in finance was only recently regulated by the Financial Conduct Authority (FCA). The European Banking Authority also issued a similar mandate to institutions wishing to adopt cloud services. Furthermore, last year’s second Payments Service Directive (PSD2) and Open Banking regulations introduced new data protection laws. Changing regulations force the BFSI sector to stay on its toes and spot any non-compliance issues immediately.

The legal framework is lagging behind rapid technological advancement. Countless reports identify the benefits of cloud computing for the financial sector but its adoption is met with resilience due to fear of non-compliance and cloud risks.

In this atmosphere, it is clear banks must consider regulatory environments before the widespread adoption of cloud services. Regulators continue to express concern over storing sensitive data on the cloud, especially with non-banking companies entering the same space. Most financial institutions are advised to take a risk-based approach before implementing any third-party cloud functionalities or relationships.

Why does it matter now?

The IBS intelligence data shows cloud technology is witnessing greater adoption by banks across the global. Cybersecurity concerns and regulatory restrictions have emerged as key factors inhibiting cloud adoption. In some markets the unavialibity of a reliable cloud technology partner deters adoption.

Financial institutions and banks are enthusiastic about cloud adoption, however, most organisations lack the expertise to apply cloud-based solutions. Challenger banks are struggling to transition the old system to the cloud due to time crunch, and lack of resources among others. The cut-throat competition among the traditional banks to adopt the cloud is also affecting their manpower and customer base. Cloud adoption in a long run could overall strengthen banks’ efficiency.

Global banks are rapidly adopting the cloud to harness unlimited scalability, save time, optimize cost, and stay ahead of their competitors. Through the help of the cloud which provides a flexible data system, traditional banks can evolve and modernise.