A massive technology transformation is underway across all sectors in the last two years. Though the transformation began way before the most unprecedented event of COVID 19 hit us, the pandemic accelerated the pace. Working from home (WFH), rising digital transactions and increased dependence on digital platforms are the outcomes of this black swan event. Sectors like BFSI (Banking, Financial Services & Insurance) have to rapidly digitalize to meet the changing customer needs. Touchless digital banking and app-based transactions have gained much traction. To operate efficiently with much agility, financial services companies are migrating to the cloud in droves. Cloud migration is a process of moving data, applications, and other business elements to a cloud computing environment (over the internet).
Enterprises operating in the BFSI space are adopting different cloud models as per their requirements. While many financial institutions are moving their data to the public cloud –business applications that are run completely in a third-party data centre; several banking institutions prefer to operate in the private cloud – individual companies operate their own data centres. Currently, the hybrid cloud model- which is a mix of the above two- is getting popular. According to a report by research firm International Data Corporation (IDC), the overall Indian public cloud services market is expected to reach $13.5 billion by 2026, growing at a CAGR (Compound Annual Growth Rate) of 24 per cent during 2021-26. And Amazon Web Services (AWS) is the dominant player in the cloud computing space.
Evolving business environment makes it imperative for financial services institutions to migrate to a cloud computing environment. Most important among those is the change in customers’ requirements. Increasingly, users are looking for customised product and service offerings suiting their needs. A cloud computing environment helps financial services entities to create such offerings at a much faster pace. Moreover, cloud adoption will enable traditional banks to compete effectively with fintech players that are embracing cloud models and other technologies rapidly. Traditional banks will be able to embrace digital banking at a much faster pace in a cloud environment and come up with innovative products that will effectively compete with new-age fintech firms in the marketplace.
Cost efficiency is the most effective outcome of cloud adoption. BFSI companies can only opt for the ‘pay as you use’ model that saves them a lot of upfront costs. Moving to the cloud enables finance companies to minimise a large up-front capital expenditure by cutting their investment in dedicated hardware and software. Moreover, the right cloud partner helps them to reduce their staffing cost by maintaining the cloud database. Such a flexible operating model allows banks and insurance companies to focus on their core operations than spending time and energy on technology functions. Usually, the cloud journey of financial institutions goes through various phases by adopting infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), and software-as-a-service (SaaS) models as per the maturity level of their digitalization.
Another distinct benefit of migrating to the cloud is the data privacy and security offered in a cloud computing environment with speed and agility intact. Operating in a cloud computing system provides a complete data backup to information, making it the most reliable technology for the BFSI sector. Moreover, operating in a hybrid cloud model ensures data privacy. This also helps banks and other financial institutions to comply with the central bank and other regulatory authorities’ norms on data privacy and confidentiality.
Lastly, the complexity of banking operations is growing with more customers being added each day. Migration to the cloud helps BFSI institutions to cope with such rising transactions without any latency or disruption. Therefore, banks can operate at scale in a cloud computing environment.
Right technology partner:
However, cloud migration comes up with both operational and regulatory challenges. For instance, not every application is a good fit for the cloud. Some applications work better on-premises than in the cloud. So, determining the reasons for the cloud migration is very important which will help in identifying those applications that can move to the cloud. Moreover, cloud adoption has to comply with regulatory requirements. For instance, for ensuring effective management of risks in outsourcing of IT activities by banks, non-banking financial companies, and other regulated entities, the RBI has issued a draft ‘Master Direction on Outsourcing of IT Services in India. Given these challenges, the BFSI enterprises choose the right technology partner with experience and expertise in executing such projects. This will lead to less latency and no disruption in current operations with the seamless implementation of the cloud project. In turn, banking entities will gain a competitive edge and stay relevant in the dynamic business environment.
(The author is Mr. Mukesh Patil, Technology Lead, Applied Cloud Computing (ACC) and the views expressed in this article are his own)