The inaugural ‘world cloud report-financial services’, by Capgemini research institute, revealed that 91% of banks and insurance companies have begun their journey into cloud computing. This marks a notable rise from 2020 when only 37% had started their cloud transformations. Despite this growth, over half of the firms surveyed have only transitioned a minimal portion of their core business applications to the cloud, Capgemini noted on Thursday 16 November 2023.
The report highlighted that 89% of financial services executives see a cloud-enabled platform as essential for agility, flexibility, innovation and productivity. However, most firms are not yet cloud-native and often use a ‘lift and shift’ strategy, which limits the full advantages of cloud systems.
AI and cloud
A critical finding of the report is the necessity of implementing cloud at scale to fully harness the value of artificial intelligence (AI) investments. While 62% of financial services firms have begun using AI, with ambitions to deploy it across their entire value chain within two years, its impact remains limited due to the lack of scale in usage, found Capgemini. The report indicated that most cloud investments are directed towards modern, user-friendly, AI-based customer-facing applications, with fewer investments in back-end core processing systems. This imbalance results in suboptimal user experiences.
The report also underscored the importance of migrating internal core systems to suitable cloud-enabled ecosystems to unlock the complete potential of AI and generative AI. This shift is expected to create a broader range of business growth opportunities in the banking and insurance sectors, where firms are already testing generative AI use cases in customer onboarding, credit analysis, financial planning, policy renewals and client servicing models.
ESG impact
Another significant role of cloud technology is in driving environmental, social and governance impact. With 95% of firms incorporating ESG impact into their investment decisions, cloud technology aids in effective ESG reporting and sustainability goal achievement. According to the report, 51% of financial services firms have observed improved transparency and reporting measures due to cloud technologies, which also enable comprehensive visibility into a firm’s carbon footprint.
Ravi Khokhar, global head of cloud for financial services at Capgemini, emphasised the non-negotiable role of cloud technology in financial services, highlighting the need for innovation-driven cloud adoption to gain a competitive edge. He also pointed out that future benefits of AI cannot be realised without cloud-enabled systems.
Hurdles
The report also delved into the priorities for cloud migration in the financial services industry. Risk management and customer relationship management were identified as top priorities across various sectors, including health insurance, life insurance, capital markets, payments, retail banks and wealth management. In wealth management, 60% of executives recognised the benefits of cloud-enabled fraud detection for risk management. Similarly, 39% of retail banking executives stressed the importance of moving complex credit risk management to the cloud to expedite loan processing.
However, data security, high operational and transformation costs, and regulatory challenges like data sovereignty remain significant barriers to effective cloud adoption at scale. To navigate these challenges, executives reported preferences for various cloud types: 39% for public cloud, 49% for private cloud and 12% for hybrid cloud. The report also referenced the European Union’s digital operational resilience act, which mandates stringent reliability, capacity and resilience requirements for financial institutions, further pushing the adoption of sovereign clouds.