Capgemini Research Institute has released its World Cloud Report for Financial Services, which revealed that 91% banks and insurance companies have initiated their cloud journey, a significant increase from 2020 when only 37% firms had embarked on cloud transformations.
However, this high rate and its corresponding investment do not translate to effective cloud adoption at scale. More than 50% firms surveyed have only moved a minimal portion of their core business applications to the cloud, the report showed.
Of the financial service executives surveyed, 89% believed that a cloud-enabled platform is crucial for delivering the agility, flexibility, innovation, and productivity necessary to meet escalating business demands. Yet, most companies are still not cloud-native and instead choose a lift and shift approach, which prevents them from utilising the scalability and flexibility of cloud-based systems.
Implementing Cloud At Scale Critical To Unlock AI's Full Potential
Nearly 62% of financial service firms have started using artificial intelligence, with a target to utilise it across the full value chain in the next two years. Yet, AI, including generative AI and machine learning technologies, are yet to be used at scale in the financial service industry and are having limited impact. The report noted that the majority of cloud investments have gone into AI-powered, customer-facing applications, with few directed towards back-end core processing systems, which leads to poor user experience overall.
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. This can create a wider range of growth opportunities and use cases across customer onboarding, credit analysis, financial planning, policy renewals, and client servicing.
“As companies race to adapt and implement generative AI, they need to be mindful that there will be no future AI benefits to be realised without cloud-enabled systems,” said Ravi Khokhar, global head of cloud for financial services at Capgemini.
Cloud Plays Central Role In Driving ESG Impact
With 95% firms now factoring ESG impact into key investment decisions, the cloud has a pivotal role in effective management of ESG reporting to help organisations achieve their sustainability goals. It can equip them with ESG impact measurement tools, as seen by 51% of financial service 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 visibility into a firm's carbon footprint across business functions and products, the report showed.
Risk Management, Customer Relationship Management Priorities In Cloud Migration
Executives surveyed across health insurance, life insurance, capital markets, payments, retail banks, and wealth management identified risk management and customer relationship management among their top three areas ripe for early cloud adoption.
In wealth management, 60% cited benefits in relying on cloud-enabled fraud detection techniques to make data-driven risk-management decisions. In retail banking, 39% emphasised transitioning complex credit risk management to the cloud to shorten loan-processing decision time.
Among life insurance executives, 55% had CRM as the highest priority for their cloud journey.
Data Security, Costs Limit Effective Cloud Adoption At Scale
Two-thirds (68%) of industry executives identified data security as a barrier to adopting cloud solutions, while 51% pointed to high operational and transformation costs as potential obstacles. An additional 45% cited regulations, such as data sovereignty, as another challenge.
With increasing data regulations, financial institutions are looking to deploy sovereign cloud, which provides secure and independent cloud computing infrastructure to help ensure data privacy and sovereignty. Of the executives surveyed, 39% reported a preference to public cloud, 49% prefer private cloud, and the remaining 12% think hybrid cloud is the best option.
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