Throughout July, we saw a series of major public cloud announcements in financial services. HSBC signed a long-term strategic deal with AWS. National Australia Bank and Microsoft confirmed a five-year multi-cloud partnership. IBM announced BNP Paribas was to become its first IBM Cloud for Financial Services anchor customer in Europe. Meanwhile, GCP is not resting on its laurels. While HSBC previously stood as one of Google’s only major financial institutions customers for cloud, this month GCP announced an expected 10-year contract with Deutsche Bank, along with a partnership with Goldman Sachs.
The new deals are part of the larger cloud story. Last week, Gartner released an updated forecast predicting 6.3% growth in worldwide public cloud revenue in 2020, increasing total spend to $258bn. While general growth in cloud-usage comes as no surprise, financial services has traditionally been more conservative than its industry counterparts in expanding public cloud usage as part of a hybrid model. We take a deeper look at the current dynamics within financial services that contributed to the July partnerships push.
What’s driving the change
Forced acceleration of digital transformation
For an industry that has long taken a cautious approach towards technology adoption, financial services has been impelled into uncomfortable territory in recent months. The pandemic changed attitude towards digital transformation to be one of urgent necessity. Multi-year programs to transition client services and banking online became multi-week plans. In many cases, the pace of change across financial institutions exceeded their own and client’s expectations. The shift to working-from-home has shown the ability of an industry that prized itself on skyscrapers to work in a distributed environment. It also forced privacy and security concerns to be addressed for collaboration and productivity software, VPN access and video conferencing. It required a fundamental change of attitude for management teams towards digital transformation – a shift in mindset that we believe will propel cloud adoption as management carries forward lessons.
Much of the collaboration that was necessary to adapt financial institutions for remote operations apply to the cloud transition. It requires holistic, cross-team decision making – risk, firewall management, application, cyber security, network, identity, and access management all need to be considered.
Proof of Concept
While the recent announcements show the scale of investment and commitment to the cloud path ahead, such partnerships did not happen overnight. HSBC has been openly talking about adopting a cloud-first approach since 2017. With 39M customers, 90,000 servers, and data centres in 21 countries, it’s staged approach is no surprise. Many started with areas of the bank that are compute intensive but less exposed to personally sensitive data or regulatory changes. Building confidence and establishing cloud stability is not just an evaluation of the external cloud provider, it is an assessment of internal capabilities and ability to manage the partnership.
Many banks spent years in the landing zone – figuring out how to layer on top of native services and the control foundation which is particularly challenging given industry regulation. For those who signed major partnership deals in July, it is not their first rodeo. After years of initial development and testing, many were ready to commit to larger scale production when the pandemic called for action.
Need for data flexibility
No period has brought home the need for flexibility quite like the first half of 2020. As we head into Q3 and face continued economic uncertainty, the need for nimbleness remains. Legacy infrastructure in financial institutions is built around infrequent batch processing, unable to provide-real time experiences that customers demand, whether it’s in-house engineers or the ultimate end financial consumer. The elasticity of compute that cloud provides give financial institutions much needed agility to innovate and pivot business models, whether it be spurred by the pandemic or by competition from fintech providers. The flexible pricing structure of cloud providers offers a natural hedge – the pay-as-you-go structure allows cost to move in-sync with the level of data storage needed. If activity drops, so too do the associated costs which removes much of the burden of planning years in advance for on-premise storage.
Increase in financial services-specific solutions
Major cloud providers have begun to recognize the need to address industry specific data concerns. Several cloud providers have attracted top talent from the industry to better serve customer needs and break down barriers that have held back public cloud adoption.
Citi veteran and former FinTech CEO for the bank, Yolande Piazza, joined GCP in June. In April, IBM named former Bank of America CTO, Howard Bolville, as the new head of its Cloud Business. Most importantly, we were happy to see providers take action to reflect industry concerns in solution-oriented offerings. For financial institutions, concern over cloud security remains the primary hurdle to adoption. Last November, IBM claimed it was developing the world’s first financial services-ready public cloud, noting that it could provide “preventative and compensatory controls for financial services regulatory workloads, multi-architecture support and proactive and automated security”. This month, Google announced an additional layer of encryption to protect sensitive customer data. While GCP already encrypts data at rest and in transit, the Confidential Virtual Machines (VMs) will also encrypt data while it is being used, indexed, queried, or trained on. While risk cannot be removed entirely, such innovations will continue to raise questions over whether financial institutions are truly in the best position to manage ongoing data threats.
Over the last year, we have seen an increase in cloud native deployments of Tamr for financial institutions. The move to cloud often acts as a trigger to revisit data quality as it opens opportunities to leave legacy, rules-based data management processes behind, reinforces the need for a scalable approach to data mastering and requires an assessment of data classification to address data sovereignty. The ability to deploy machine learning models, improve operational efficiency and increase time-to-value of data are typically key drivers of a cloud-first mindset that align with the value proposition of Tamr. While we will always remain flexible to the hybrid choices of our financial services customers, we expect to see a continued growth in cloud-first approach as institutions look to leverage the elasticity, security, and cost benefits of cloud computing. At Tamr, we are banking on a cloudy outlook.