The challenges of Cloud and why it is the only route to Digital Transformation
In recent years, cloud has become the only way to successfully deliver digital transformation and has displaced traditional on prem development as the primary method of delivering new services to customers.
However, whilst cloud technology drives forward innovation, the business architecture surrounding it is still set up to support more traditional ways of working. As a result, all industries are grappling with the organisational changes necessary to access the benefits of cloud in their technology strategy. Whilst these changes are underway, cloud has been forced to conform to the restrictions of heavily regulated industries, where the cost of getting it wrong remains significant.
As we progress into a new decade, banks, regulators, and cloud service providers alike will need to adapt to fully realise a cloud first strategy.
Obstacles to Achieving Cloud Adoption
Over recent years, we have seen cloud technology gain significant momentum. According to a recent Gartner report, $257.5 billion was spent on cloud in 2020 alone, and the technology is forecast to account for 14.2% of the total global enterprise IT spend by 2024. However, this adoption hasn’t been without its challenges and when we reflect on recent years, we can quickly identify some trends:
Challenge #1: People
For most change projects, the biggest blocker to delivering at speed is people, and cloud is no different. Banks have mature processes for implementing technology change, and control frameworks in place to ensure areas such as cyber security, risk and compliance are on board. However, a cloud first architecture breaks the traditional model with functions delivered as services by Cloud Service Providers (CSPs) rather than in house by banks, thus forcing organisations to review their ways of working to ensure outdated expectations are not blockers to innovation.
Challenge #2: Data
Whether data is held in a database on-prem in Sheffield, or on infrastructure hosted by AWS, data security is a hot topic when it comes to new technologies. A data breach of any size can result in considerable consequences, including hefty regulatory fines or irreparable reputational damage, and so ensuring a bank’s data is protected and secure is top priority. For the first time, banks are sharing the responsibility of protecting their data across significant parts of their infrastructure with a third party. Nonetheless, to the regulators the banks remain fully accountable, so considerable work has taken place to prove that the same level of protection exists on the cloud as on-prem, through continuous audits and extensive design documentation. For many, this has led to significant delays to cloud benefits being realised as the scrutiny around evidencing data security on cloud has intensified.
Challenge #3: Regulatory Compliance
Since the financial crash of 2008, a significant proportion of the change agenda across the financial services industry has been driven by new regulations. Understanding and responding to regulatory standards is seldom easy, however a lack of consistency across governing bodies only exacerbates the problem. Whilst banks explored the benefits of cloud a lack of uniform standards has resulted in significant duplication and repetition of effort to respond to regulatory questions and challenges. Not only have banks been navigating their own internal standards, they are having to respond to regulation where the ‘what’ is clear, but the ‘how’ remains open to interpretation.
Looking Forward: What’s to Come?
Despite its challenges, the demand for cloud adoption has grown exponentially with business and IT teams alike recognising its appeal, with 67% of enterprise infrastructure being cloud based by the end of 2020. Given the current growth predictions for cloud, what do we expect to see happen over the coming decade?
On Prem Becomes Obsolete
Building new cloud native applications and services is a trend that is here to stay, and it remains critical to consider whether an application is suitable for cloud before defining a delivery or migration roadmap. However, the industry will move beyond developing any new applications on-prem and, in future, development teams will no longer need to justify why something should be built on the cloud, instead needing to justify why it shouldn’t.
Location is Re-Introduced
As a way of responding to stringent data regulations, Distributed Cloud is likely to see significant uptake in 2021 and beyond. Whilst historically location is abstracted away from the core principles of cloud, Distributed Cloud brings it back into discussion by allowing banks to run public cloud infrastructure from a wide range of locations; cloud providers infrastructure, in data centres of third parties, monitored and managed from a single control plane. Not only does it enable lower-latency compute capabilities, it also provides greater control for banks to dictate where their data is stored, thus making it easier to comply with data privacy regulations.
Critical Infrastructure Change Up
As the industry’s technology estate becomes increasingly cloud based, the major CSPs will soon become critical financial services infrastructure and will need to be regulated as such as their failure could be catastrophic. Given their robust infrastructure, it is unlikely this failure would come from a service outage, a more likely scenario being where one of these providers is hacked resulting in a significant data breach, not only resulting in their own reputational demise, but bring the banks reputations down with them.
Regulators Regulate Technology
At the core of every bank, is a significant technology stack which is critical to enable banks to run their day-to-day functions. Whilst banks are still considered to be businesses, without the technology that underpins them, they would fail instantly. Historically, regulators have had little input into the specifics of the technologies adopted by banks, however as we progress with our adoption of cloud, regulators will be forced to play a more significant role in defining the expected technology standards required of banks to meet their already severe mandates.
Today, cloud is the foundation to enable digital transformation. The demand for cloud services will continue to drive investment in this space, both by suppliers and their customers. As we move towards 2030, cloud discussions will move away from migration and adoption and simply be conversations about maintenance, with cloud hosted architectures being the norm and on prem development becoming a thing of the past.