Cloud gains prominence in capital markets

by Sohini Bagchi    Oct 29, 2013


In the past one year, the financial markets globally continued to remain under pressure to increase revenue, enhance customer experience, reduce costs, replace legacy systems, and meet regulatory requirements. To address these challenges, most organizations are focusing on transforming themselves by increasing investments in emerging technologies such as Cloud computing, big data and mobility.

Cloud spending to increase

Research firm Ovum sees that in the next one year, banking and financial firms will increase their spending specifically on cloud computing. The research firm sees this transformation not only as a result of budgetary pressure, but also due to an improvement in cloud security and the evolution of a wider variety of applications in the cloud that is further driving the capital market to this shift.

According to Ovum researchers, until now, the segment was considered to be one of the late adopters of cloud services globally because of security fears of cloud platforms and stringent compliance regulations. They believe that although these firms are not fully integrated with the cloud currently, the situation is set to change in the coming years.

Rik Turner, senior analyst, financial services technology at Ovum explains that currently for capital markets, the buy side has more integration with cloud services, given that more of its participants are smaller firms with limited IT budgets. However, he points out that the sell side is also changing. “With budgets and headcount under greater constraints since the global financial crisis, there are clear opportunities on that side of the business too,” he writes in a blog.

Focus on application outsourcing 

As financial institutions gear up for these changes, they are looking to identify strategic partners that can help them develop solutions to drive efficiency and sustain the pace of growth. Another research by Everest Group points out, with the continued trend towards consolidation, financial institutions are signing larger and more strategic application outsourcing (AO) contracts with service providers, a phenomenon that the researchers expect will alter the AO services landscape in the capital markets in the coming months.

Elaborating the capital market’s AO trends, Everest Group researchers state that the overall, the industry saw the highest growth within BFSI in 2012. However, IT spending for large capital markets firms fell drastically during the year. According to the researchers, Europe and APAC gained market share for large capital markets AO deals even though the deals were seen to be declining in other parts of the world, especially US and Middle-East.

Fixed price and outcome-based pricing will continue to gain prominence driven by buyers’ increased focus on effectiveness and search for new value levers, state the report.

Similarly the Ovum study also points out that applications like order management systems (OMS) are increasingly hosted and managed services delivered by third parties, rather than in-house applications, although they are not yet wholly cloud services. Meanwhile, portfolio management systems are now commonly hosted in the cloud.

Hybrid: the next logical step?

While capital markets move towards application outsourcing and decision makers look to deploy more of their internal IT infrastructure in the cloud, some see the hybrid cloud as the next logical step. According to research firm Gartner, by 2016, nearly half of the large enterprises will have hybrid cloud deployments, owing to limitations of using private and public cloud as a one-size-fits-all service are becoming more apparent, a growing number of enterprises are looking to adopt a hybrid cloud infrastructure instead, it found.

But according to Ovum, there are still obstacles such as integration and lack of standards that need to be overcome before a hybrid cloud infrastructure can be used effectively. “In the future, there will be an even faster uptake of cloud services in general, says Turner.

(Also read: What’s stopping companies from adopting Hybrid Cloud here.)

The Everest Group report also points out Cloud will impact operational efficiency and help these organizations comply with regulations, as well as help them expand in emerging geographies. Similarly, social media, mobility and analytics will also emerge as key technological themes for capital markets firms for the next 12-18 months, believe analysts.