November 18, 2020

Strategic challenges of cloud adoption in financial services

While the move to the cloud was already well underway in financial services, the outbreak of the covid-19 pandemic has accelerated the need for virtual organizing, and specifically slipstream cloud-based working. But while moving to the cloud can unlock significant benefits, it also comes with several challenges. 

In the past weeks, Freddy Gielen, an Executive Partner at consulting firm Avantage Reply, and Nelson Phillips, Professor of Innovation and Strategy at Imperial College Business School, interviewed several senior leaders in the financial services industry about their experiences with moving to the cloud. 

They found that experiences with cloud-based working are overwhelmingly positive, with the technology lauded for its capability to increase productivity, innovation and scalability. In addition, cloud can also power technologies such as artificial intelligence and data analytics, supporting insights and decision-making.

Strategic challenges of cloud adoption in financial services

At the same time, the experts uncovered four strategic challenges:

1. Is the cloud secure?

There was a general concern about security and cloud governance. Moving things to the cloud means a range of new risks as data moves out of the firm – but there was also a belief that cloud can be as secure, if not more secure, than traditional on-site storage if done properly. But this requires deep in-house expertise in managing cloud governance and raises a larger issue: the ability of a firm to rapidly move to the cloud is often limited by the competencies and outlook of the IT team. 

In these cases, a safe and effective move to cloud requires the renewal and reorganization of technical staff. For example, during their implementation of cloud, FINRA trained more than 600 cloud architects and technologists, a move that they identified as key to their successful cloud implementation.

2. Too few cloud service providers

There was a widespread recognition of the challenge of the concentration of cloud services. The reality is there are only a handful of firms that can provide cloud services at scale. Where critical IT knowledge used to be about running data centers and networks, with the move to the cloud the most important expertise is knowing how to effectively manage cloud providers. This also means the solution will often not be a cloud, but rather several clouds used for different purposes. 

For example, banking giant J.P.Morgan uses a four-cloud strategy supported by Amazon, Google and Microsoft, in addition to running a private cloud. However, building and managing this sort of solution requires deep competencies in the strategic deployment and governance of cloud systems. 

3. How to move data to the cloud

While the cloud can make data “smarter”, this requires more than a simple “lift and shift” of data. Where bringing together distributed and unconnected data for analytics was previously expensive and time consuming, data properly stored in a “data lake” can reduce cost and drive innovation. 

Moving data to the cloud makes data more easily available for dashboards, visualisations, big data processing, real-time analytics and machine learning. But creating a data lake requires time, effort and know-how to properly manage and restructure the data during the move.

4. Rethinking business applications

Moving to the cloud is also an opportunity to rethink legacy applications that were developed over time and in a very different technological context. It is important to decompose applications into discrete modules to take full advantage of the cloud beyond simple server/cloud arbitrage. By decomposing, it is possible to scale up and down independent functions of the application and add new features to each component. But this requires careful attention and a willingness to forgo the temptation to simply move current applications to the cloud in the cheapest manner possible. 


Gielen and Phillips conclude, “cloud services are here to stay in financial services and the current situation will only accelerate the move. But firms need to be strategic in their adoption and there are important questions that need to be addressed. While some of the problems are technical, there are significant strategic and organizational challenges that need to be dealt with in the C-suite to ensure cloud adoption is successful.”