2) Legacy Applications and Cloud Migration Risks
Even after a financial services institution discovers that a cloud service supplier firm can securely govern its data and sensitive data can be preserved on-prem, it may still be reluctant to proceed with the cloud migration with doubts about its technical capabilities. The decision of how to proceed is usually where the process is at a deadlock.
Technical debt, constraints, inefficiencies caused by obsolete technologies, and underqualified tech staff can negatively impact technological innovation and restrain their efficiency from meeting their business objectives. Pinpointing technical debt and designating a precise correction plan with measurable milestones is necessary before fully embracing the cloud. Cloud adoption without optimizing your current tech stack and applications and minimizing technical debt would not be effective.
Due to the legacy technologies in use, it often requires more than a simple “lift and shift” type of migration. Cloud migration is an opportunity to revisit legacy applications developed over time, probably in an outdated technological context. A helpful approach would be to destructure current applications into separate modules to scale up and down the functions and add/remove features to each component accordingly. This approach is much more sustainable in the long run, rather than moving everything in the cheapest way possible.
You can develop robust business cases for the applications and workloads that would most benefit from early migration to the cloud and build some apps from scratch as cloud-native instead of upgrading legacy platforms. It will help you with better performance, full cloud-native compliance, and savings on license fees.
3) Unclear Total Cost of Ownership Estimations
One of the significant barriers to cloud adoption for financial institutions is justifying the financial returns of cloud adoption to CFOs.
Since the 2008 financial crisis, the financial services sector has devoted severe efforts to increase performance and profitability. An IBM and BIAN co-study states that the “Average return on equity (ROE) remains well below banking industry metrics, and cost to income ratio (CIR) has improved on average but remains high.” The same study stresses that institutions with a holistic approach to business operations are most successful with their digital transformation and financial performance.
A provable return for financial institutions would be the switch from a CapEx to an OpEx model for IT. Traditionally, geographical business expansion requires high upfront CapEx. An on-prem model requires the CIO/CTO to invest in costly IT hardware every few years and depreciate these assets over their useful life. However, these capital expenditures are substituted with usage-based monthly payments to cloud service providers in the cloud model. Moving to cloud-based technologies liberates organizations from hardware limitations and enables them to adopt flexible OpEx models that focus on driving innovation and delivering excellent customer experience.
It is also advantageous that major cloud service providers have built-in monitoring and reporting tools to forecast and track cloud costs and compare performance metrics. Some valuable performance metrics are uptimes, throughput, error rates, and latency.
The cloud is a cost-effective solution allowing financial institutions to save notable amounts on hardware, utilities, installations, and headcount they can spend elsewhere.
4) Lack of an Overall Cloud Strategy
There’s a requirement for a clearly-documented cloud strategy covering all company aspects that supports the overall company strategy for long-term success. However, this is usually not the case. Gartner estimates “less than one-third of enterprises have a documented cloud strategy.“
Migrating to the cloud should be accepted as a businesswide project requiring senior executive sponsorship tied to a culture change in financial institutions. It should be implemented as an infrastructure platform for business development to drive change, not a separate IT project. Cloud governance must entail all endeavors related to information security, cost management, outsourcing risk management, and innovative data practices while staying within regulatory constraints.
An effective cloud adoption program for the financial services industry should incorporate an elaborative legacy application modernization strategy. Otherwise, legacy system maintenance would become a substantial financial burden and an impediment to integrating high-tech systems, averting cloud benefits.
Financial institutions can unlock business value and derive more from their data with the right hybrid cloud strategy. According to IBM Transformation Index: State of Cloud study, 71% of surveyed financial services organizations, thought it was challenging to realize the full potential of their digital transformation without having a solid hybrid cloud strategy.
McKinsey’s study states that financial institutions need to make critical shifts across three dimensions: strategy and management, business-domain adoption, and foundational capabilities to evolve beyond nascent cloud programs. (See below matrix)
5) Lack of a Qualified Workforce
Historically, critical IT knowledge was related to running data centers and networks. However, with the trend toward the cloud, the most crucial expertise has shifted to managing multiple cloud providers effectively.
The financial sector often utilizes several cloud systems used for different business purposes. As managing various cloud solutions requires in-depth competencies and experience in the strategic deployment and governance of cloud systems, it requires high-level talent.
While cloud technology is no longer brand new to the financial services sector with the constantly growing number of skilled workforce, there is still a need for a culture shift towards more collaboration and agility to attract the right talent.
Financial services institutions continue maximizing their technology potential by migrating more core workloads to the cloud and actively considering multi-cloud and hybrid-cloud strategies that enhance the resiliency of existing IT infrastructure, facilitate digital transformation, and reduce concerns.
If you are a financial services institution developing your strategy to move to the cloud in search of the right partner to help you identify your approach for cloud migration, please check this page and contact us.
Kartaca is a Google Cloud Premier Partner with approved “Cloud Migration” and “Data Analytics” specializations.