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Help Net Security
December 27, 2023
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DATA SECURITY AND COST ARE KEY CLOUD ADOPTION CHALLENGES FOR FINANCIAL INDUSTRY



91% of banks and insurance companies have now initiated their cloud journey, a
significant increase from 2020, when only 37% of firms had embarked on their
cloud transformations, according to Capgemini.



However, this high rate and its corresponding investment does not translate to
effective cloud adoption at scale. More than 50% of firms surveyed have only
moved a minimal portion of their core business applications to the cloud.

89% of financial services executives believe that a cloud-enabled platform is
crucial for delivering the agility, flexibility, innovation, and productivity
necessary to meet escalating business demands. Yet, most firms are still not
cloud-native and instead tend to opt for a “lift and shift” approach that
hinders the full benefits of cloud-based systems’ scalability and flexibility
advantages.


SCALING CLOUD CRITICAL FOR FULL AI VALUE

62% of financial services firms have started using artificial intelligence (AI),
with a target to utilize it across the full value chain in the next two years.
Despite their potential, AI, including generative AI and machine learning
technologies, are yet to be used at scale in the financial services industry and
therefore are having limited impact.

The research found that to date much of the cloud investments have been applied
towards modern, user-friendly, AI-based, customer-facing applications. Fewer
investments are made in back-end core processing systems that are providing
inputs to consumer-facing front end applications, resulting in a poor overall
user experience.

According to the report, the migration of internal core systems to suitable
cloud-enabled ecosystems and platforms is critical to unlock the complete
potential and efficiency of AI and generative AI. In return, this will spark the
emergence of a wider range of business growth opportunities over the coming
years. Today, in banking and insurance, firms are testing their generative AI
use cases across customer onboarding, credit analysis, financial planning,
policy renewals and to support client servicing models.


CLOUD’S ROLE IN DRIVING ESG IMPACT

With 95% of firms now factoring ESG impact into all key investment decisions,
the cloud also has a pivotal role to play in aiding the industry’s effective
management of ESG reporting to help achieve their sustainability goals. It can
equip them with essential ESG impact measurement tools, as seen by 51% of
financial services firms citing improved transparency and reporting measures.

Cloud providers are starting to develop solutions that can track and report
scope 1, 2 and 3 level emissions, offering comprehensive visibility into a
firm’s carbon footprint across business functions and products.

“For today’s financial services organization, ignoring the cloud is simply not
an option. Moving to the cloud requires looking beyond a cost-savings approach
and being centered around driving innovation to gain a competitive edge,” said
Ravi Khokhar, Global Head of Cloud for Financial Services at Capgemini.

“As companies race to adapt and implement generative AI, they need to be mindful
that there will be no future AI benefits to be realized without cloud-enabled
systems. By defining and establishing an effective cloud target operating model
at scale, the full potential of these transformational new technologies can be
harnessed,” Khokhar continued.


CLOUD MIGRATION PRIORITIES INCLUDE RISK AND CUSTOMER RELATIONSHIP MANAGEMENT

Industry executives surveyed in this report across health insurance, life
insurance, capital markets, payments, retail banks and wealth management,
identify risk management and customer relationship management (CRM) amongst
their top three areas ripe for early cloud adoption.

In wealth management, 60% cite benefits in relying on cloud-enabled fraud
detection techniques to make data-driven risk-management decisions. Likewise,
39% of retail banking executives emphasize transitioning complex credit risk
management to the cloud to shorten loan processing decision time, through
cloud-enabled automated processes and integrated analytics.

Insurers are exploring data-driven personalized value-added services, such as
roadside assistance, to align with evolving customer preferences. Among life
insurance executives, customer relationship management (55%) stands out as the
highest priority for their cloud journey.


CLOUD ADOPTION CONSTRAINED BY DATA SECURITY AND COST CHALLENGES

Despite significant advantages, industry executives express concerns about the
challenges associated with cloud migration. 68% identify data security as a
barrier to adopting cloud solutions, while 51% point to high operational and
transformation costs as potential obstacles. An additional 45% mention
regulations, such as data sovereignty, as another factor that may pose
challenges.

Recently, the Digital Operational Resilience Act (DORA) mandated that financial
institutions subject to European Union (EU) regulations must rigorously
implement, document, and uphold the requisite systems, protocols, and tools to
provide sufficient reliability, capacity, and resilience.

Sovereign cloud, which provides secure and independent cloud computing
infrastructure to countries to help them ensure data privacy and sovereignty, is
therefore fast becoming a common deployment option. To address these concerns,
39% of executives reported a preference to leverage public cloud, 49% prefer
private cloud, and the remaining 12% think hybrid cloud is the best option.





More about
 * artificial intelligence
 * Capgemini
 * cloud
 * cybersecurity
 * data security
 * financial industry
 * Generative AI
 * insurance
 * report
 * risk management

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