Cloud computing has been touted as a tech trend for years now, and financial experts are predicting that 2021 will be a year of rapid growth in this area. The opportunity around cloud computing is expected to reach $832.1 billion by 2025. The Covid pandemic accelerated cloud adoption because it presents a compelling solution to remote operations that were largely frowned upon by financial institutions pre-pandemic. Covid cast a spotlight on inefficient technology and processes in banking.
Financial institutions and the financial sector at large have been slow to adopt cloud computing. The top concerns from banks and credit unions center on data sovereignty, security, and a lack of awareness around the benefits cloud computing offers. These concerns aren’t unfounded but should be well-understood before writing-off cloud solutions. Let’s take a closer look at these concerns before outlining some of the benefits, and how executives should approach the cloud opportunity.
Data Control Fear
In the world of cloud computing, data is shared at the server level. In what’s known as a “multi-tenant” cloud, all clients share a central infrastructure. The centralized nature of the cloud is what makes it so efficient, and yet it’s also the same property that makes finance executives uncomfortable.
Banks and credit unions don’t like to share data. It is for this reason that financial institutions who seek out cloud computing solutions may prefer to have their own server. In theory, their solutions provider could create a deployment of their technology on a dedicated server to accommodate institutional clients, but this isn’t ideal.
Cloud technology providers prefer operating with one server to maintain because they can do centralized updates that give benefits to all clients at the same time. To do otherwise makes them much less agile.
Financial institutions want to protect their client’s data from co-mingling with others and hacker targets, and to do this they believe they need their own server. However, the counterargument is that if the technology provider only has one system, then they only have one system to defend.
Fear of Security Threats
Finance executives are rightly concerned about security. Anyone considering cloud technology solutions should be aware of their main security risks. These are:
Compliance violations
Compliance is especially pronounced in the financial sector. Institutions have to be mindful to not let advances in technology undermine their rigorous compliance standards. Moving data away from servers owned by financial institutions, means they have to closely examine how that data will be managed in the cloud. Executives will have their IT and compliance department doing due diligence on data protection, data localization and data sovereignty for any technology they’re considering.
Identity theft
User account information stored in a cloud environment, like an email, can be stolen by hackers for unauthorized activity leading to identity theft. To prevent cloud account hijacking, executives should have their teams auditing the security performance of cloud solutions they’re evaluating. Consider the number of incidents the provider has had involving data loss, downtime, and how they monitor for vulnerabilities.
Read More: Digital Banking Transformation Begins With Quality Data
Malware infections and data breaches
Malware is any type of software that can harm your computer, network, server or client. There are many types of malware attacks, and since cloud-based systems are typically open to the internet, they can be vulnerable to these types of threats. Cloud computing teams can reassure financial executives by creating a zero-trust model, offering multi-factor authentication, taking a least-privilege approach to user permissions, and more.
When security threats occur, consumer trust is eroded and the potential of revenue loss is pronounced. The centralized data storage that is fundamental to cloud computing is what lends itself to security threats, and perpetuates fears around data sovereignty. However, while hacker attacks are top of mind in terms of security, many financial institutions and firms are already using cloud technology. These early adopters understood that the benefits of cloud computing outweigh the risks.
Highlighting Cloud Benefits
Data security and sovereignty are the top fears executives have around cloud computing, yet another main factor holding them back is that the benefits aren’t clear. Cloud computing allows all types of businesses to access automation solutions around their processes, which inevitably leads to faster and easier operations. That’s not all. Salesforce lists 12 compelling benefits of cloud computing, and interestingly security is listed as number two. Here are some of the most relevant benefits for financial institutions:
- Cost Savings — 50% of all IT leaders surveyed cited the benefit of cost savings from using cloud applications, according to Salesforce.
- Security — 94% of businesses saw improved security after migrating to a cloud solution. 91% said the cloud made government compliance requirements easier to adhere to.
- Flexibility — 65% of respondents said that one of the most important benefits of cloud technology is the ability to meet business demands quickly.
- Mobility — Through cloud environments, businesses can easily accommodate remote employees, freelance employees, and anyone outside the office. Organizations that prioritize employee satisfaction are 24% more likely to expand cloud usage.
- Increased Collaboration — With information stored in a central online location, it’s easy for team members to access and share information from anywhere.
- Quality Control — Since cloud-based systems store all documents in the same format, everyone is accessing the same information, helping to maintain consistency across data and users. Cloud systems will also have documented records of any updates to monitor and control quality.
- Automatic Software Updates — Without cloud-based environments, businesses have to rely on their IT department to perform manual updates across the organization. With automatic updates from cloud applications, 50% of cloud adopters said they relied on fewer internal IT resources.
- Competitive Edge — 77% of businesses said that their cloud technology gave them a competitive advantage, and 16% said the advantages were significant.”
- Sustainability — Cloud environments lower a business’s environmental footprint.
Read More:
- Why Data Privacy Could Be Banks’ Next Big Competitive Battleground
- Banking Providers Still Aren’t Ready for Big Data
- Advantages of Cloud Computing In Banking Can’t Be Ignored
How Banking Executives Should Approach Cloud Solutions
After weighing the pros and cons, financial institutions that wish to move forward with cloud technology need a way to approach these solutions. When selecting a cloud-based fintech provider, executives should first consider the overall benefits to them.
1. Always consider total cost of ownership. Is the cost of all of the institution’s on-premise IT infrastructure greater than the cost of a cloud technology solution that can do the same things? If the answer is yes, then first create a shortlist of cloud tech providers to consider.
2. Look for and actively ask if the cloud-based company has a SOC report prepared by an independent auditor. SOC reports, governed by the AICIPA, assess the trustworthiness and credibility of a supplier. This step should be part of a larger vendor due diligence process, where each provider’s system architecture, controls, data policies and more are assessed thoroughly.
The SOC process is rigorous, and executives may end up excluding any vendor that isn’t enterprise size at enterprise costs. So executives are encouraged to think beyond the check box to find the best solutions for their business.
3. Ask each vendor to provide a tailored proof of concept to zoom in on the vendor’s fit. Considering this new cloud system will be deeply entwined across an organization’s operations, it makes sense to fully try out each solution and make sure that it works for an institution’s unique needs. Be sure IT and admin teams have access to any cloud service providers being considered to have all of their questions answered.
4. Lastly, seek references. Look for cloud solutions that are already in use by your competitors or peers. Look for third-party reviews, or simply ask each provider for the name of a consumer of theirs that can be reached for a reference check.