Over the past decade, organizations have increasingly started using cloud computing as a core element of their business, and many regard them as essential elements for competition.
Due to many factors, including regulatory and risk management, financial services providers have been slower to embrace cloud services. However, advanced cloud services offerings are shifting the financial industry away from thinking cloud services are a “nice to have” and toward believing they are a “need to have.”
That said, financial services companies have a unique set of requirements when it comes to adopting cloud-based services. On this page, we will explore the concept of cloud services for financial services, the benefits they bring, and the challenges that banks and insurance companies face in embracing cloud services. We will also discuss how Red Hat helps the financial services industry with cloud services.
The primary ways cloud services have advanced the financial services industry are through efficiency, cost savings, and the reduction of complexity, which have spawned new and innovative business practices and service offerings to customers.
The implementation of cloud services has allowed financial institutions to:
- Increase the speed to market and scalability of financial services products.
- Strengthen the security and compliance efforts of institutions.
- Provide an enhanced customer experience with a focus on customer outcomes.
When teams don’t have to manage application infrastructures, they can focus on providing relevant services to their customers such as:
- More robust mobile banking and digital wallets.
- Automated investment advice.
- Digital mortgage and loan services.
- Blockchain-based solutions for transparent transactions with a focus on security.
The adoption of these new technologies and services has not only improved the customer experience, but has also increased the efficiency and profitability of financial institutions, according to a Frost and Sullivan analyst whitepaper.
So if there are so many benefits to cloud services for financial services providers, why have they been slow to adopt them? The primary reason is that financial services have many regulatory compliance requirements related to them. In general, risk must be weighed more heavily than for many technologically-similar industries without as much regulatory overhead.
The regulations are due to the sensitive nature of the financial data that is being stored and processed in the cloud, as well as the significant risk that industry represents to the global economy.
Some examples of the regulatory overhead for insurance and banking that are affected by cloud services are:
Third-party risk: Third-party risk refers to the potential risks and threats that arise from external parties, such as vendors, suppliers, contractors, or business partners, who have access to an organization's systems, data, or resources. These external parties can pose a significant risk to an organization's security, confidentiality, and availability of its assets, systems, and data. Various regulations tie third-party risk back to financial institutions and must be accounted for when choosing cloud services.
Data privacy: Banks and insurance organizations collect and store a vast amount of personal and financial information from their customers. This data is highly sensitive and confidential, and any unauthorized access to it can result in severe consequences, such as identity theft, fraud, and financial losses. How financial institutions store and use this data is highly regulated and these regulations must be accounted for when choosing a cloud services provider.
Operational resilience: Operational resilience is the ability of an institution to provide core services such as daily transactions when the organization is widely disrupted in some way. This is particularly important in banking and insurance because the failure to provide critical services can have significant negative consequences for the wider economy, and is therefore highly regulated. The ability of a cloud services provider to aid operational resilience is key for banks and insurance organizations.
Cloud sovereignty: In banking and insurance, regulatory rigor is placed on making sure cloud resources are hosted and managed under a specific geographical location so as to maintain a coherent regulatory framework for the institution. This places additional regulatory burdens on choosing a cloud provider.
While, initially, the controlled pace of cloud adoption within financial services was primarily due to risk management and concerns about security and regulations, banking and insurance providers now have a more positive outlook on cloud services. In fact, today, many financial services providers say that a good cloud services strategy is key to competitive success. However, because the industry was originally slow to adopt, developing and implementing an enterprise cloud services strategy has been challenging.
Banking services providers
Banks have adopted cloud computing and services differently and as a result have a plethora of services that may already be using 4 or 5 different platforms from just as many cloud services hyperscalers.
Larger institutions have faced the challenge of increased competition in a regulation-high environment by adopting large in-house teams to manage their different services and platforms. Meanwhile, smaller organizations push to match services to stay competitive. Such resources are costly and having them focus on cloud management instead of application development and innovation is more costly still. An option to unify the multiple services they already have into a single managed hybrid cloud platform allows them to refocus their resources on building out applications while still keeping an eye on regulatory compliance.
Insurance services providers
For insurance services providers, significant business overhead is focused on compliance. Depending on the size and nature of your product lines, regulations can range from global to regional depending on the specific jurisdictions that they operate in. This means that even for larger providers, each regional niche of that organization has their own specific needs. This leads to two things.
First, each specific jurisdictional region may have different cloud computing needs, and may choose a different provider. That’s why having a consistent process and procedure in place for your cloud strategy - one that allows for a unified experience across a multi or hybrid cloud environment - is critical to your organization’s operations.
Second, in each of these jurisdictions (or for smaller companies doing business in just one), insurance providers often do not have the in-house resources to manage these multicloud and hybrid cloud environments themselves. In these instances, they may seek managed cloud services with outside expertise to maintain complex cloud environments. In the early days of cloud computing, a lot of the burden of managing cloud applications fell on the organizations purchasing the cloud computing. Now, there are options for fully managed cloud services that work across complex hybrid cloud environments.
Red Hat helps the financial services industry by providing a simplified, consistent platform so companies can spend more time building out applications and keeping services compliant. Red Hat offers a fully managed container environment that helps financial services companies reduce support costs, increase operational efficiency, and innovate without sacrificing security.
Red Hat® OpenShift® works with whichever hyperscaler the customer prefers, including AWS, Microsoft Azure, Google Cloud, and IBM Cloud, and supports hybrid and multicloud environments.
Multiple Red Hat OpenShift cloud services are available, so you can choose the option that best fits your organization’s needs:
Red Hat OpenShift Dedicated, running on Google Cloud
Each service offers more than just access to managed software and technologies. They provide complete, full-stack environments with all necessary services, simple self-service options, and expert 24x7 support via stringent SLAs.