Organisations in the banking and financial services sector are migrating to the cloud. Yet while technology forms the bedrock of modern banking and commerce globally, cloud adoption has been slower than in many other sectors.
Migrating to the cloud is however, becoming more appealing to the banking sector, and new research reveals that the accelerating adoption of cloud technology can be attributed to a significant degree by one factor: Covid.
Yet new forms of hybrid working are not the only drivers of cloud migration. Today, it is as much about increasing the efficiency of banking procedures.
In this article we will look at the benefits of cloud adoption, some of the challenges associated with it, and how some of these are specific to Africa where, currently cloud adoption lags behind the rest of the world.
Key reasons banks and financial services are migrating to the cloud
1. Cost optimisation
Cost optimisation is a major reason why banks and financial services organisations are migrating storage, systems and other infrastructure to the cloud, with many specifically looking for net savings.
A key benefit of the cloud is the reduced requirement for capital investment, management and maintenance, as this can be outsourced to cloud service providers, often for a lower cost than managing it all internally.
2. Improved operational efficiencies
Banks and financial services organisations operate in an increasingly pressured and competitive environment as new entrants and internet banks entering the market tend to be more agile in their operations.
Finding ways to reduce costs and increase operational efficiencies is always a challenge, but moving to the cloud offers opportunities to review and update many legacy systems.
3. Modernised IT infrastructure
On that note of updating legacy systems, cloud technologies offer banks the opportunity to adopt more hybrid forms of IT and data operations, bringing increased scalability and flexibility.
These flexible and scalable benefits afford advantages to many newer players and market entrants as they tend to be cloud- or hybrid-based from the outset.
4. Enhanced competitiveness
In the same way that outdated legacy data systems may impact on banks’ operational efficiencies and put them at a disadvantage to newer, more agile market entrants, so moving to the cloud can ultimately enhance competitiveness.
Migrating to cloud-based data systems can enable whole new mode of operation to banks and financial organisations, freeing them up to apply their resources to systems such as artificial intelligence.
Why are financial organisations in Africa lagging behind with cloud adoption?
Globally, the rate of cloud adoption within the banking and financial services industry is increasing rapidly. Research suggests that as of 2020, “91 percent of financial institutions were actively using cloud services or planning to use them soon”, a considerable increase since five years earlier.
This trend is, however, not reflected in Africa, despite the immense potential of a large, young, technology-oriented population and increasing investment in infrastructure and wide availability of mobile phones.
This is largely due to issues such as a lack of data centres, but also unreliable infrastructure and varying regulatory frameworks in different countries.
In 2020, it was estimated that Africa is host to only 1.5% of the world’s data centres while Europe and the US have 70% between them.
To exacerbate the problem, the data centres based in Africa are disparately distributed, with South Africa having some 65% of the capacity, the rest spread unevenly across the many other countries.
The benefits of cloud adoption
Improved scalability
Greater agility and flexibility
Customer demands have evolved with the introduction of mobile phones and payments. Legacy banking infrastructure is often unsuitable for keeping pace with these new demands.
But cloud-based systems make it easier and faster to adopt and deploy new technologies, applications and services, this enabling them banks and financial providers to serve and respond to customers’ needs more efficiently, as well as allowing them to respond more easily to upturns or downturns in demand.
Converting capex to opex
A key factor for financial institutions in migrating to the cloud is the goal to cut costs.
While it does not automatically follow that overall IT costs will be lower following a move to the cloud, it is clear that capital expenditure can be reduced, thus shifting IT data and infrastructure costs to operating expenditure.
Better disaster recovery provision
Climate change shows us that the natural disaster events are likely to be more frequent in the future. Added to this, the potential of terrorist incidents and war make the risk of a systems or infrastructure outage a distinct possibility, with the huge disruption this brings.
By moving to the cloud, banks and financial institutions can ensure they are in a position to recover quickly by switching across to cloud-based backup systems.
The challenges of cloud migration
For all the advantages offered by the cloud, migration of legacy systems does not come without its challenges.
Ensuring and maintaining regulatory compliance
Financial regulatory frameworks across Africa vary greatly, and in some cases do not exist at all.
Moving to the cloud necessarily involves the movement of data including customer account data. This makes the task of ensuring customer data and funds are safeguarded potentially very challenging.
Regulatory legislation for cloud services operations typically covers factors including data privacy guidelines, location of data, service availability and data processing. Unless such legislation is in place, and agreed across borders, banks are left to form their own regulatory rules.
Availability of expertise
The cloud migration process involves careful planning and project management expertise, requiring considerable time to execute.
Where there is a lack of specific digital, IT, network and infrastructure to plan and complete data migration to the cloud, banks will be held back from adopting cloud technology and the potential benefits.
Concerns about security
How Astel and Utimaco can help
Here at Astel and Utimaco help you plan, scope and execute your migration to the cloud.
With vast experience across the region and with a range of Utimaco “as-a-service” products include Payment HSM as a service, u.trust Anchor and KEES at our disposal, we are ready to start your project now.
Statistics used in this article are sourced from a white paper on cloud adoption from Sopra.
