Financial institutions need cloud agility too

Posted by Ron Miller on Dec 30, 2015 11:00:00 AM

Cloud agilityA new report, released this month by the European Union Agency for Network And Information Security, describes the views of European financial services companies toward the cloud. For the most part, this group remains skeptical.

According to the report, European financial services companies recognize the benefits of the cloud but are still extremely cautious about making any kind of significant move there. Instead, they are confining their cloud activity to safer undertakings like email or experimental projects. For the most part, they prefer private clouds over public ones.

Contrast this with the report published by the Cloud Security Alliance called How the Cloud Is Being Used in the Financial Sector (pdf), which surveyed financial services companies from around the world but mostly concentrated in the U.S., and you have a very different picture.

While U.S. financial services firms worry about the same types of issues around compliance, security, and data privacy, the U.S. firms are much further along than their EU counterparts. That's not to say they are all in on the cloud, but neither are they living completely inside in-house data centers.

One thing we have learned over the past couple years is that sensitive data is not necessarily protected in the cozy confines of private data centers. We've seen high-profile breaches across a range of financial services companies, such as the JPMorgan Chase breach in October 2014 when information on 76 million customers was exposed. We've also seen breaches in healthcare with the massive Anthem Health breach in March of this year when information on 80 million customers was exposed to hackers. We have seen it in government as well, with the OPM hack that affected 22 million people who have worked for or applied for jobs with the United States government.

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All of that suggests that perhaps things aren't quite as cozy and secure as the European financial services companies might think (at least according to that survey). Yet 42 percent of those surveyed reported that they lacked an explicit cloud strategy or were just in the early stages of developing one, while 8 percent reported having no cloud strategy at all.

Contrast that with the CSA report in which 61 percent of respondents reported they were developing a cloud strategy usually around a hybrid approach. To be fair, both reports characterized participants as early along in the process, but the CSA respondents appeared to be more advanced in their thinking than their European counterparts.

What Financial Services Companies Are Up Against

The issue here is cloud agility and responding to customer needs in a changing market. When you're using older, clunkier, less connected systems, it's harder to respond to changing customer requirements. Moving forward, traditional financial firms will be competing with a whole new generation of digital-born companies and ones that weren't traditionally in the finance business.

Consider that companies like Alibaba in China and the Coles supermarket chain in Australia are getting into financial services. Alibaba's Ant Financial is getting into a range of services including small business loans, online payments, and wealth management. Meanwhile, Coles is selling car insurance and getting into banking services with credit cards and loans.

These companies are sending a shot across the bow of traditional financial services companies by offering cheaper, faster, and sometimes less bureaucratic approaches than traditional financial institutions offering similar services.

While their data center technology may be comfortable and familiar and the cloud represents the unknown and giving up control to a third party, the market forces at play make it very difficult for these companies to maintain the status quo.

Even the laggards in the EU financial sector recognize this, but they are moving slowly out of fear. What they don't realize is that if they do nothing, they will be left behind by this new generation of companies using cheaper cloud services to lower their costs and remove some of the friction involved in traditional financial dealings. They have little choice but to forge ahead as their U.S. peers have started to do.

Photo Credit:  (c) Can Stock Photo 

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Topics: Cloud Trends

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