Business Side Driving Capital Markets to the Cloud

Business drivers, not cost cutting, are now providing the main push to cloud computing at financial firms. This shift signals the importance of cloud technology when leveraging other emerging technologies, such as artificial intelligence and advanced data analytics, and fires a warning shot to financial institutions dragging their feet on cloud. TABB Group head of fintech research Monica Summerville examines cloud adoption in the capital markets and highlights some key cloud technology trends.

News that Goldman Sachs and IBM are establishing financial industry-specific clouds and that public cloud holdout Bank of America is “working with potential providers to take the next step [to public cloud]” underscores the extent to which financial services have embraced this technology. The latest TABB Group outreach (based on a survey of 94 capital markets professionals, of which 59% were C-level/division heads) has found that business drivers are now providing the main push to cloud computing at financial institutions (see Exhibit 1, below).

This shift signals the importance of cloud technology when leveraging other emerging technologies, such as artificial intelligence and advanced data analytics, which often are business-led initiatives. It also fires a warning shot to financial institutions dragging their feet on cloud. Firms that are cloud native, or nearly native, have already gone through their cost-cutting phase (see Bank of America’s cloud journey, right) and are now shifting their focus to developing competitive advantage. Those still focused on only cost savings may find clients lured away by new and improved services elsewhere.

Exhibit 1: Business Drivers Are Key as Firms Focus on Gaining Competitive Advantage

Source: TABB Group Survey, Q4 2019

Capital Markets Firms in Early Stages of Digital Transformation

An analysis of workloads currently deployed to the cloud indicate that capital markets firms, as a whole, are in the early stages of their digital transformation. With “storage and database” and “disaster recover/backup” as the most prevalent workloads in the cloud, it is clear that for many firms cloud still means Infrastructure-as-a-Service (see Exhibit 2, below).

Exhibit 2: How Financial Institutions Are Using the Cloud

Source: TABB Group Survey, Q4 2019

While the overall trend is to move more workloads to the cloud, a notable portion of respondents told TABB that they are planning to move some workloads back on premises. TABB Group’s interpretation of this, based on more targeted outreach, is that, rather than indicate a move away from cloud, the latter represents firms that are more cloud-savvy. Offerings and pricing schedules from cloud solution providers vary widely, and as firms become more educated on which workloads and applications are best suited for cloud, they make more informed decisions.

Focus on Enterprise Gives Azure an Edge in Capital Markets, But AWS Still Strong

With the business increasing its involvement, cloud adoption is getting C-level attention, which means adoption at the enterprise level. TABB research has found that this has provided a boost for Microsoft, whose Azure cloud service, with its well-regarded hybrid cloud solution and long-established corporate relationships, is seen as the most enterprise friendly. While AWS is widely regarded as the cloud leader in the general market, when it comes to capital markets, our outreach (see Exhibit 3, below) and survey data from others, such as Goldman Sachs, have found that Azure is used by more capital markets firms.

Exhibit 3: Azure Takes Top Spot in Capital Markets Market Share

Source: TABB Group Survey, Q4 2019

Of course, many financial institutions use multiple cloud providers. While a small percentage of these firms are cloud-agnostic (meaning they do not favor one vendor over another, often purposely so, to avoid vendor lock-in), this is a more challenging approach when moving to a cloud-native architecture. TABB outreach found that for firms with more than one cloud provider, AWS is most likely to be viewed as the main provider (see Exhibit 4, below). And both AWS and Google are still firmly focused on servicing large enterprise clients in capital markets, with both providers launching hybrid cloud offerings last year.

Exhibit 4: Multicloud Firms See AWS as Their Main Provider

Source: TABB Group Survey, Q4 2019

Challenges Remain Considerable

It is important that the business takes the reins when steering the firm toward the cloud because the barriers to adoption remain highly varied and non-trivial. Data privacy/security and legacy infrastructure remain top barriers to innovation (see Exhibit 5, below) especially for those firms at earlier stages of their cloud adoption journey. Firms on the sell side, which as a group tend to be further along, are finding that a lack of in-house expertise is the main barrier, however, as they face challenges recruiting and retaining enough of this specialist talent.

Exhibit 5: Culture Has Changed, But Data Privacy/Security and Legacy Tech Still Major Issues

Source: TABB Group Survey, Q4 2019. (Note: Respondents were asked to name their top three barriers to adoption.)

Time to Catch-Up Is Running Out

Capital markets firms’ technology priorities have moved beyond cloud adoption in general to focus on business-led implementations of other emerging technologies. Those institutions that are cloud native already can move much faster.

But all is not lost for firms that have fallen behind. The major cloud vendors are focused on supporting large enterprises and are making it easier for these entities to connect and interact with the cloud. Meanwhile, those firms finding legacy infrastructure impeding their digital transformation journey can take heart from advancements in desktop interop technology, which allows legacy applications to be integrated with modern web apps without the need for extensive rewrites, buying time for firms to phase out critical applications.

It is clear that, as a whole, capital markets firms are still in the early days of their cloud adoption journeys. However, drilling into specific results, we see a number of firms across all respondent entities that are already cloud native. Those that have achieved this feat are now free to shift resources to solving business problems and building competitive advantage by leveraging other cloud-enabled emerging technologies. Some have already started doing so. This is a make-or-break year for the rest to sort out their cloud strategies and put them into action.

To learn more about how capital markets entities are adopting cloud technologies, please contact TABB Group for information on Monica Summerville’s latest report, “Capital Markets and Cloud: Business Takes the Reins.”

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