Financial institutions need to pursue their own path to the cloud

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Isme Oosthuizen | Associate Director | BCG Platinion | mail me


Cloud adoption, including hybrid and multi-cloud adoption is expanding fast among both private and public sector organisations of all sizes. At the enterprise level, we estimate that two-thirds of companies globally already use multiple clouds.

We predict that by 2025, up to 60 percent of consumer-facing applications, almost 40 percent of data warehouse and analytics workloads, and more than 30 percent of core business applications will be running on public clouds operated by the likes of Amazon, Google, and Microsoft.

Traditional on-premises technology will handle no more than a third of these workloads. South Africa’s path to the cloud is following a similar trajectory, but with a preference for hybrid cloud.

The pathways of adoption

The Enterprise Cloud Index report by Nutanix found that 50 percent of South African businesses surveyed moved with speed to adopt hybrid cloud in 2020, and that 88 percent consider hybrid their ideal operating model – in line with the global average of 86 percent.

Financial services is the exception to the rule. Instead of rushing to the cloud, banks, credit card and payment companies, and insurers are likely to move toward hybrid or multi-cloud models at a measured pace over several years or more, and the pathways of adoption will include banking software vendors as well as large cloud service providers.

Banks and other financial services providers face a complex, hybrid, and fluid tech landscape that will demand a mix of infrastructure, skills, capabilities, and partnerships to navigate. Each company’s size, business mix, data and technology strategy, and ambitions will shape its journey.

The state of play: meeting the needs of financial institutions

In response to internal demand for increased agility, scale, speed, cost-savings and efficiencies, as well as external competitive signals from peers and new digital rivals, financial institutions of all sizes and types have tested various approaches to the cloud.

These efforts have ranged in scope from launching limited pilots to moving major workloads to cloud services providers (CSPs).

For industry-unique reasons, including mainframe technology, regulatory frameworks, and organisational digital maturity, financial institutions have been slower than businesses in other industries to move their core infrastructure workloads to CSPs.

This will change as leading CSPs establish more offerings for the financial industry to reduce the barriers to adoption and as all but the largest institutions face decisions about whether to build new data centres, upgrade existing ones, or seek alternative solutions to expanding needs and rising costs.

Sooner or later, most will embrace some form of hybrid model. The majority of South African traditional banks are in the process of adopting a hybrid cloud strategy, enabling them to move certain applications and platforms to the cloud to drive organisational efficiencies.

Most CSPs are pursuing strategic partnerships with major financial institutions to address industry-specific needs and requirements.

For example, Standard Bank, the continent’s largest financial institution, has partnered with Microsoft, on a cloud-first strategy to enable innovation and resilience. It involves migrating the bank’s workloads, applications, and platforms to Microsoft Azure to drive organisational efficiencies, as well as workforce collaboration.

Absa, for instance, has chosen Amazon Web Services (AWS) to build new service capabilities in the cloud for a more agile business and to optimise technology expenditure. The bank has launched more than 100 initiatives on AWS Cloud and is accelerating its cloud adoption to enable it to innovate, offer new value propositions to customers, manage and access big data sets and bring products to market faster.

Overall, CSPs are increasingly recognising that they cannot just provide the tech – they need to understand the bank’s core business and collaborate to solve real business problems.

Planning for the future: taking the hybrid versus multi-cloud approach

But since not one cloud architecture is perfect for all purposes when it comes to tooling, service selection, and sourcing models for each layer of the technology stack, chief information officers (CIOs) at financial institutions need to make decisions on a couple of levels.

First, they need to determine what their strategy should be with respect to hybrid or multi-cloud operating models.

Second, they need to figure out how to implement their strategy with respect to tooling (open standards versus off-the-shelf commercial solutions), operating model (hybrid or true multi-cloud—with CSP vendor agnosticism and workload portability—versus multiple clouds that operate independently), and sourcing model (CSP agnostic versus CSP native adoption).

We have found that financial institutions have a continuum of choices, with differing architectural trade-offs that they must consider in the context of the organisation’s broader IT and business strategy. At the strategic level, the industry has yet to reach a consensus view on hybrid or multi-cloud usage, and institutions’ experiences and results vary.

Whichever route an institution chooses, four truths are likely to shape its journey:

  • Adoption will be slower than most observers predict. The cloud will not replace data centres in the next three to five years. Most institutions can continue to operate their current data centres while they work with core banking software vendors on future offerings.
  • The future is hybrid. Institutions need to be thoughtful about how to make hybrid and multiple-cloud solutions work.
  • The industry has its own cloud challenges. The design and technology choices that institutions ultimately make must reflect the particular challenges of the industry, including latency, operational resiliency, security, and compliance. Companies should also be thoughtful about enabling end-to-end automation, orchestration, and integration.
  • Every institution needs to build some muscle in cloud. Even hybrid solutions entail building a set of in-house skills to work with cloud partners. For organisations that want to lower the risk and cost of cloud adoption, training staff and building capabilities are just as important as pursuing a specific outcome or benefit.

For example, Absa introduced a cloud incubator initiative with AWS, to train 1,500 staff members across Africa with the aim to enable participants to identify cloud opportunities within their businesses and create more efficient, scalable services and solutions.

In conclusion

By giving employees the confidence to innovate quicker and experiment more, the bank will drive broad-scale digital transformation. South Africa’s financial institutions need to plan for a future in the cloud, but their emphasis should be on getting the integration right rather than making the transition fast.

A cultural shift away from long-established approaches to technology that have served financial institutions well will be a big part of the challenge. Each institution will move at its own pace, and leveraging others’ experience can help.


 



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