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THE LOOMING CLOUDS

22

How and Why Cloud Services are Reshaping the Future of Financial Services in Europe

WHITEPAPER

In cooperation with:

https://eurocloud.org2

The Looming Clouds / Whitepaper

EuroCloud Europe a.s.b.l.66-68, rue de GasperichL-1617 Luxembourg

E-Mail: [email protected]: https://eurocloud.org© 2019 EuroCloud Europe

3https://eurocloud.org


PREFACE: A SHIFTING INDUSTRY TURNS TO THE CLOUDThe financial services industry is confronting challenges across the globe. Externally, it must deal with new regulatory demands for greater transparency, new consumer demands, shareholders calling for faster growth and higher margins, and disruptive competition from both familiar and non-traditional actors. Internally, financial services firms grapple with legacy systems, ossified IT systems, and more.

Cloud computing offers many attractive benefits in this context. Chief among them are the ability to strengthen and streamline a firm’s IT ecosystem, lower operational costs, and shorten time-to-market windows. Cloud computing can make a wide range of financial services operations cheaper, faster, safer, and smarter.

Yet a surprising number of firms have yet to take the plunge and implement a robust cloud strategy. Recent surveys suggestion that 43 percent of banks do not have a cloud strategy or have only started implementing basic cloud practices, Two-thirds say that fewer than half of their business lines are currently using the cloud.

This paper will trace the drivers of change across the financial services industry to illustrate the trend towards cloud computing. Common challenges banks encounter on their drive to the cloud will then be discussed. We will conclude with some discussion of how banks can overcome these challenges.This Whitepaper was created in a cooperative process between Guido Greber Technology Advisory from Accenture and Konstantin Yershov. Financial Services Solution Architect from Red Hat: both proven financial services and cloud management experts.

We hope you’ll find it useful on your journey to successfully transforming your financial service solution into the cloud.

Zürich, February 2019

Martin Andenmatten President EuroCloud SwitzerlandVice-president EuroCloud Europe

Tobias HöllwarthPresident EuroCloud Europe



TABLE OF CONTENTS

PREFACE: A SHIFTING INDUSTRY TURNS TO THE CLOUD .......................................................................................................................3

SECTION ONE: HOW DID WE GET HERE? PEOPLE, MARKET FORCES AND DRIVERS OF CHANGE IN FINANCIAL SERVICES ........6

A NEW ERA OF CONSUMER EXPECTATIONS ..............................................................................................................................................6One: other industries have raised the bar .......................................................................................................................6Two: the industry is not well trusted..................................................................................................................................6Three: new business models ...............................................................................................................................................7

CHANGING WORKPLACE CULTURE ..............................................................................................................................................................7

AN UNCERTAIN FUTURE ................................................................................................................................................................................7

NEW DIGITAL COMPETITION .........................................................................................................................................................................8The tipping point arrives .......................................................................................................................................................8Incumbent leaders sound the alarm .................................................................................................................................8

CHANGING REGULATIONS ............................................................................................................................................................................9A shifting mosaic of requirements .....................................................................................................................................9Notable regulations and standards affecting cloud use ...............................................................................................9Regulatory compliance: new partners .............................................................................................................................12Regulatory compliance: new tools ...................................................................................................................................12

THE SHRINKING COST AND RISING PACE OF CHANGE ......................................................................................................................... 13

A LASTING LEGACY ..................................................................................................................................................................................... 13

RISING COSTS—AND CHALLENGES .......................................................................................................................................................... 13

THE FUTURE IS IN THE CLOUDS ................................................................................................................................................................ 14

SECTION SUMMARY .................................................................................................................................................................................... 14

SECTION TWO: BARRIERS TO THE CLOUD ............................................................................................................................................... 15

REGULATORY CHALLENGES ...................................................................................................................................................................... 15

DATA SECURITY ........................................................................................................................................................................................... 16

MIGRATING TO THE CLOUD IS TOO COMPLEX ........................................................................................................................................ 16

DATA IN THE CLOUD IS GEOGRAPHICALLY AMBIGUOUS ....................................................................................................................... 16

INSUFFICIENT USER CONTROL ................................................................................................................................................................. 16

OBSERVATIONS FROM THE FIELD ............................................................................................................................................................ 16

THE MISSING LINK: DETAILED CLOUD STRATEGY ................................................................................................................................. 17



SECTION SUMMARY .................................................................................................................................................................................... 17

SECTION THREE: THE JOURNEY FROM TODAY’S IT TO THE CLOUD .................................................................................................... 18

DEALING WITH TECHNICAL DEBT ............................................................................................................................................................. 18

DIGITAL DECOUPLING ................................................................................................................................................................................. 18

SECTION SUMMARY .................................................................................................................................................................................... 19

KEY TAKEAWAYS ......................................................................................................................................................................................... 20Number one: since cloud affects everything, everyone should be involved .........................................................20Number two: engage regulators early on your cloud journey ..................................................................................20Number three: open systems are winning.....................................................................................................................20

CLOUD IS NO LONGER A CHOICE. IT IS AN IMPERATIVE. ....................................................................................................................... 20

ABOUT THE AUTHORS ................................................................................................................................................................................ 22

GUIDO GREBER ............................................................................................................................................................................................ 22

KONSTANTIN YERSHOV.............................................................................................................................................................................. 22

ABOUT ACCENTURE .................................................................................................................................................................................... 23

ABOUT RED HAT .......................................................................................................................................................................................... 23

ABOUT EUROCLOUD EUROPE..................................................................................................................................................................... 23



SECTION ONE: HOW DID WE GET HERE? PEOPLE, MARKET FORCES AND DRIVERS OF CHANGE IN FINANCIAL SERVICESA NEW ERA OF CONSUMER EXPECTATIONSDigital disruption has come relatively late to financial services. Yet the digital revolution in other industries, like advertising, travel, and retailing have changed the landscape for financial services customers by shifting their expectations. As a result, a growing number of consumers and businesses are expecting change in financial services.

We see three principal reasons for this:

ONE: OTHER INDUSTRIES HAVE RAISED THE BAR

Consumers have been exposed to enhanced digital customer experiences in many other industries. The digital experiences offered by firms like Amazon.com, Inc., Netflix, Inc., Apple Inc., Uber Technologies Inc., Facebook, Inc., and Google LLC raise the bar for all kinds of digital service providers.

Incumbent financial services also lag digital leaders in their own industry. Look at banking, for instance. Opening a small business account at a traditional bank could take over a month. The same process can take mere minutes at a “digital-first” bank.

TWO: THE INDUSTRY IS NOT WELL TRUSTED

The financial services industry continues to struggle to win the trust of the general public. A decade after the financial crisis, global trust in the industry is still well below pre-crisis levels. One recent global survey found that 54 percent of consumers trust financial services, ranking the industry below the consumer packaged goods and automotive industries, making it the least-trusted industry in the survey.

The survey’s most trusted industry? Technology.1

1 “2018 Edelman Trust Barometer Reveals Record-Breaking Drop in Trust in the U.S.,” January 21, 2018.

Digital leaders have taught customers to expect more from digital services—no

matter the industry. Many financial services incumbents are scrambling to keep up.

In the wake of the financial crisis, the general public does not trust financial services compared with other industries.



THREE: NEW BUSINESS MODELS

The third factor driving disruption in financial services is new ways of doing business. Fintechs are using modern technology to create new business models that use digital channels in new ways to create disruptive products such as zero-fee core banking services. These developments are pushing incumbent financial services firms to adapt—or at least consider—new business models.

In response to these new models, many established players are looking at tactical means of improving their own business models. Often this entails investing in easily adoptable technology.2

CHANGING WORKPLACE CULTUREThe future of the financial services industry should belong to agile organizations. Such firms have been described as “living businesses.”3 These firms should be able to adapt at speed and scale to enhance their relevance and sustain growth.

That agility should be useful in the war for talent, which has never been as complex and important for financial services firms as it is today. To find, hire and retain top-tier talent, financial services firms should adapt their infrastructure and their culture. This is expected to place the workforce and human-machine collaboration at the heart of strategic planning. Bold financial services leaders should focus their attention on strengthening human capital. Coping with a world of constant change is best done by teams that can innovate without fear of failure, reshape themselves rapidly, and work from anywhere.

AN UNCERTAIN FUTUREFor much of its history, financial services have been seen as slow-moving and conservative. Increasingly, this caricature does not fit reality. The industry today is subject to multiple fast-moving, hard-to-predict trends, any one of which could rewrite much of the industry landscape.

For instance, look at regulation—the revised Payment Services Directive (PSD2), for example. PSD2 introduces new rules around transparency and access to data in banking, forcing incumbent players to innovate like never before. In many instances, these new regulations are lowering the barriers to entry for competition too.

2 “Fintech and the evolving landscape: landing points for the industry,” Accenture, 2016.3 “Shaping the Adaptive Financial Services Organization of the Future,” Accenture, 2018.

New competition is pushing incumbents towards new business models.

Competition for top talent is fierce and fast-changing. Firms that win should enjoy considerable business advantages.



Another example is the cavalcade of new technologies that have exploded onto the financial services space in recent years. From blockchain to machine learning to cloud technology and beyond, potential game-changers are emerging at a speed that would boggle the mind of an industry veteran from even 20 years ago.

As industry-changing developments continue to arrive at ever-faster speeds, the path forward for financial services can seem obscure. No one can say with certainty that they know exactly what tomorrow will bring for financial services firms.

The future of the industry is not merely unclear. It is downright blurry.

NEW DIGITAL COMPETITIONTHE TIPPING POINT ARRIVES

The industry in Europe is at a tipping point, especially in consumer banking. Incumbent players have clients and scale. The would-be disruptors usually have a significant innovation edge, especially in client experience. The European Union (EU) Commission has also announced a plan for changing financial services regulations to make it easier for Fintechs to enter the market.4

A certain wakeup call, given the industries lengthy product enhancement and rollout cycles. A recent research report touched on the issue.5 They offered as an example one European bank which uses a three-fold approach. The fastest rollouts, most limited in scope, take between eight and 12 weeks. Larger product changes take between six and 10 months. Waterfall programs, involving major changes to multiple product lines, take between three and five years.

This research report also suggests that best-in-class financial services companies in emerging markets move up to 10 times faster than a typically larger firm. Fintech and major tech firms move faster still.

INCUMBENT LEADERS SOUND THE ALARM

Some of the influential voices in the industry have begun ringing the alarm bell on this front. The Bank for International Settlements, for instance, has warned of the “increasing challenge” Fintech poses to incumbent financial services firms.”6 Anthony Jenkins, the former CEO of Barclays Bank PLC, has warned that Fintech

4 “FinTech action plan: For a more competitive and innovative European financial sector,” European Commission, March 8, 2018.

5 “Bank of the Future: The ABCs of Digital Disruption in Finance,” Citi GPS: Global Perspectives & Solutions, March 2018.

6 “EU Banks face stiff competition from fintech firms, as banking rules treat software as a cost rather than an investment,” Tech2, September 6, 2017.

Fintechs can develop and launch new products much faster than incumbents.



presents the financial services moment with an “Uber moment,” and that the number of employees and bank branches could shrink by half as a result7.

For incumbent financial services firms, staying relevant in this context should require ongoing transformation. They should consider changing their business models, organizational structures, cultures, and technology infrastructures. For example, banks are strongly encouraged to also overhaul their strategies to make greater use of artificial intelligence (AI) and other forms of automation.8

Most daunting of all is overhauling their core systems and radically boosting their adoption of cloud-based services.

CHANGING REGULATIONSA SHIFTING MOSAIC OF REQUIREMENTS

Financial services is one of the most heavily regulated industries in the world. Any financial firm interested in starting its journey to the cloud should conduct a rigorous assessment of the regulations across jurisdictions to which it is exposed.

Yet much of the regulatory picture is fluid or ambiguous. In the U.S., there are no specific regulations prohibiting the use of the cloud in providing core financial services. Elsewhere, regulators are concerned with the storage location of data, in some cases stipulating that it must be kept within a local jurisdiction. A recent EU report found that “the financial industry is dealing with a lack of clear, formal guidance that is consistent across all National Financial Services Authorities on the specificities of cloud based services.” 9 This uncertainty could dissuade firms from embracing the cloud.

Nevertheless, the cloud remains attractive. It promises cost reduction, flexibility, scalability, and a better use of IT. In the absence of regulatory harmonization, the industry is adopting this new technology gradually. This requires making sense of a complex and shifting mosaic of regulations.

NOTABLE REGULATIONS AND STANDARDS AFFECTING CLOUD USE

Financial services firms should be aware of many different regulations as they begin their cloud journey. Here are some of the most crucial.

7 “Ex-Barclays chief says banking could face its own ‘Kodak moment’; urges banks to embrace fintech solutions,” Yahoo Finance, June 26, 2017.

8 “Bank of the Future: The ABCs of Digital Disruption in Finance,” Citi GPS: Global Perspectives & Solutions, March 2018.

9 “Cloud banking or banking in the clouds?,” BBVA Research, April 29, 2016.

Regulations affecting the use of cloud are complex and potentially risky for financial services firms, yet the advantages of cloud remain attractive. Realizing them

requires tracking a complex and shifting regulatory mosaic.



PSD2The new PSD2 directive allows bank customers, both individual and institutional, to use third-party providers to manage their finances.10 This should result in entirely new types of services being developed. It should also create new competitors and new opportunities for incumbents. Accenture estimates that services offered by payment initiation service providers could account for up to 16 percent of online retail payments by 2020.11

OBSEstablished by the Euro Banking Association,12 the Open Banking Standard (OBS) offers guidance on how open banking data should be created, shared, and used by its owners and others with access to it. The OBS offers opportunities for financial firms to innovate at pace and create new revenue streams.

GDPRThe EU’s General Data Protection Regulation (GDPR), which came into effect in May 2018, sets high standards for data protection in cloud services. The GDPR mandates that all businesses in the EU need to protect the privacy and personal information of their customers.

The overall spirit of the GDPR is to protect the privacy of EU residents in the digital age. Financial services firms will need to not only ensure that they comply with the regulation, but that their cloud contractors and suppliers do as well. As the penalties for non-compliance can be significant, it is suggested that financial services firms run biannual audits to measure their compliance.13

However, contrary to some press reports, GDPR compliance does not require that data about EU customers be stored in the EU per se. Rather, the data can be stored anywhere, provided such storage comports with GDPR requirements.14

eIDASThe EU’s regulation on electronic identification and trust services (eIDAS) creates a European market for electronic trust services. eIDAS aims to make cross-border electronic transactions secure and safe in the EU. It also establishes some regulatory requirements for providers of financial services.15

10 “PSD2 – the directive that will change banking as we know it,” Evry.com.11 “PSD2: How can banks seize the opportunities?,” Accenture.12 “Open Banking Working Group,” Euro Banking Association.13 “GDPR and the cloud: What you need to know,” InfoWorld, March 2, 2018.14 “GDPR and the cloud: What you need to know,” InfoWorld, March 2, 2018.15 “Trust Services and Electronic Identification (eID),” European Commission.

Financial services firms looking to make use of the cloud should not only understand and comply with the GDPR—they should also ensure that their cloud providers do.



The CLOUD ActThe Clarifying Lawful Overseas Use of Data (CLOUD) Act is an American law passed in early 2018. It allows American authorities to compel companies based in the U.S., to produce data on their servers, regardless of where those servers are located. The CLOUD Act has been much criticized in Europe for its apparent conflict with privacy rights and the GDPR in particular.16

FINMA Circular 2018/3In April 2018, the Swiss Financial Market Supervisory Authority (FINMA) Circular 2018/3 came into force. It stipulates that financial services firms with a registered office in Switzerland, as well as Swiss branches of foreign banks, must follow certain requirements when outsourcing functions and processes, including cloud utilization.17

MiFID IIMiFID II is an updated version of the EU’s Markets in Financial Instruments Directive. It imposes regulatory changes aimed at making cross-border financial services within Europe less opaque, less risky, and more balanced.18 MiFID II has major implications for any financial services firm looking to start its cloud journey.

MiFID II is reshaping the distribution model for asset management in two ways. First, it effectively bans commissions, incentivizing a shift to fee-based services. Second, it enforces rigorous requirements to provide independent advice with increasing cost transparency. Overall it limits the scope of available product offerings while increasing compliance costs across the industry.

The cloud could offer attractive benefits here. For instance, MiFID II’s investor protection provisions require proactive advice in some instances—a challenge to provide at scale.19 Cloud-powered AI can help track large numbers of portfolios against client risk profiles and perform this type of analysis.

The regulatory landscape for European financial services firms looking to the cloud is undeniably complex. By way of example, Figure 1 lists the applicable regulations a German financial firm must follow as it moves to the cloud.

16 “European criticism of new US Cloud Act mounts,” Handelsblatt Today, April 24, 2018.17 “Outsourcing at banks and insurance companies,” Finma Circular 2018/3.18 “MIFID II,” European Securities and Markets Authority.19 The technology challenges to implementing MiFID II, Accenture Research

The opportunities presented by cloud computing offer important benefits to financial services firms in achieving

regulatory compliance with efficiency and confidence.



Figure 1. High-level view of regulations applicable to German financial firms

REGULATORY COMPLIANCE: NEW PARTNERS

Financial services firms are not alone in their cloud journey. Cloud providers are committed to privacy-friendly pre-sets on their services, which is called “privacy by design” or “privacy by default.” Research has found that customers need to be more active in their personal privacy management, however.20

REGULATORY COMPLIANCE: NEW TOOLS

The financial services industry was heavily regulated before the advent of the cloud. One of the many benefits of moving to the cloud is its potential to make compliance easier.

Regulators in multiple jurisdictions have pushed financial services firms to “clean up” their customer data to better comply with regulations like MiFID II and GDPR. This is not an easy task for firms that have legacy

20 “A New Slice of PII, With a Side of Digital Trust,” Accenture 2017.

The complexity of regulations is an undeniable hurdle for financial services firms looking to begin their cloud journey. But such firms can also bring

a new set of tools to bear on the issue of regulatory compliance.

Figure 1 Source: Accenture analysis based upon publicly available documents



core systems. Indeed, it is almost impossible without the use of emerging technologies like machine learning, AI, and robotic process automation. These, in turn, often require the use of cloud computing.

THE SHRINKING COST AND RISING PACE OF CHANGEAs noted, the financial services industry historically had relatively lengthy product release cycles. Growing competition and shifting regulation are pressuring the industry to shorten these while digital development tools and cloud computing are making new levels of agility and development speed possible. Notable technologies in this area include agile IT infrastructure provisioning (including cloud-to-virtual and physical-to-virtual migration), robotic process automation, software-as-a-service and infrastructure-as-a-service solutions, real-time analytics, blockchain, machine learning, and bots.

A LASTING LEGACYFinancial services firms first developed their computer mainframes in the middle of the 20th century. Over 50 years later, most incumbent firms still use legacy systems based on mainframes, sometimes running on outdated programming languages. Some industry observers argue that legacy IT systems have reached the point of redundancy.21

These core mainframes were most often purchased from third-party vendors. Mainframes would be dedicated to supporting a single application, such as a deposit system.

These systems were not designed to integrate with each other. As financial services firms added more and more mainframes to their businesses, silos emerged. Interoperability challenges arose. Today, for some firms, thousands of these applications need to be maintained.

RISING COSTS—AND CHALLENGESToday’s legacy systems are undeniably reliable. They are often also undeniably slow and expensive. Research has found that IT expenses as a percentage of revenue are notably higher in the banking sector than in other industries. Their analysis suggests that up to one quarter of a bank’s annual costs are allocated to IT.22

21 “Bank of the Future: The ABCs of Digital Disruption in Finance,“ Citi GPS: Global Perspectives & Solutions, March 2018.

22 Bank of the Future: The ABCs of Digital Disruption in Finance,“ Citi GPS: Global Perspectives & Solutions, March 2018.

The foundations of today’s financial services IT systems are over 50 years old—an eternity in

the fast-moving world of tech. These systems are approaching the end of their useful lives.



Financial services firms have also more or less been forced to hack their own systems to override the lack of interoperability. Complex webs of interdependence and cross-functionality have arisen in the industry over time. Changes are difficult to implement and test.

Legacy systems could foreseeably meet the future needs of the industry if business demands were to remain fixed. Yet the pace of change is as fast as it has ever been—and getting faster.

THE FUTURE IS IN THE CLOUDSThe above analysis is not particularly new. The situation has taken years to develop. The reason the financial services industry has not built new systems without legacy limitations is simple: the cost is prohibitive and the required scale is difficult to achieve.

This is one of the interesting benefits of cloud technology. The cloud helps cut the high cost of hardware and eliminates some maintenance costs. Having less physical equipment means a lower opportunity cost for infrastructure and a lower real dollar cost maintenance.

Cloud systems are also uniquely scalable. For example, providing new IT resources to a division of a bank in a legacy environment might take months. In a cloud environment, it can be done in minutes.23

SECTION SUMMARYA range of factors are encouraging the financial services industry in Europe to begin its cloud journey. These include shifting consumer expectations, the growing burden of legacy systems, and rising competition. Significant hurdles confront any financial services organization that seeks to embrace the cloud, but there can be little doubt that the future of the industry is in the clouds.

23 Bank of the Future: the ABCs of Digital Disruption in Finance,“ Citi GPS: Global Perspectives & Solutions, March 2018.

While the financial services industry has made remarkable progress in modifying legacy systems to

meet modern needs, it may be difficult to keep up with dedicated digital-first competitors.

In addition to unlocking next-level technologies like AI, cloud systems offer financial services incumbents

a way out of the legacy system conundrum.



SECTION TWO: BARRIERS TO THE CLOUDFinancial services firms navigate a complex and challenging landscape on their way to the cloud. Yet solutions to these challenges are also beginning to emerge. What follows are the most important barriers financial services faces on its journey to cloud—and some perspective on how a clear cloud strategy can address them.

Figure 2. Example of security and compliance frameworks for cloud services

REGULATORY CHALLENGESAs noted, the regulatory challenges financial services firms face as they move to the cloud are undeniably complicated. Yet achieving clarity and compliance is possible—and both are made easier and more efficient with cloud technology. Cloud leaders like Microsoft Azure™ and Amazon Web Services, Inc. have adapted their contracts for financial services firms to comply with regulatory requirements.

Figure 2 Source: Accenture, January 2019



DATA SECURITYMany financial services players are understandably concerned about the security of data in the cloud. Leading cloud firms could offer encryption services that provide a layer of security that cloud providers themselves cannot crack.

MIGRATING TO THE CLOUD IS TOO COMPLEXThe legacy systems that the cloud should eventually replace were built over decades. Moving their functionality to the cloud is no small feat. Yet it is not impossible. A clear strategy, roadmap, and migration plan can help any financial services organization reach its cloud-enabled target state.

DATA IN THE CLOUD IS GEOGRAPHICALLY AMBIGUOUSFinancial services firms may be concerned about knowing exactly where their data is for regulatory purposes. Cloud services providers are aware of the demand for this and can deliver services that keep data in the customer’s region. Third-party tools can also provide additional control.

INSUFFICIENT USER CONTROLSome financial services firms worry that cloud services take control away from the user in crucial aspects. For instance, cloud users sometimes do not have total control of their privacy and security mechanisms. Yet the security accreditations and certifications of cloud providers are, in general, far more extensive than their equivalents in financial services.

OBSERVATIONS FROM THE FIELDIn the practices of both Accenture and Red Hat, we’ve seen a number of financial services firms hone their cloud strategies and effectively transition away from legacy technology systems to create business advantage in an unpredictable economy, lower time-to-market for new products, and modernize their IT landscapes.

Achieving cost transparency is a common motivator. But moving to the cloud is more than a cost play. The cloud can be a revenue-driver move that removes historical constraints on IT.

Financial services firms may feel unable to pursue cloud adoption strategies as aggressively as

they’d like. Many perceived barriers are based on fears or myths and could be overcome with a

clear, powerful cloud strategy.



THE MISSING LINK: DETAILED CLOUD STRATEGYA recent Accenture cloud readiness study surveyed 35 retail banks to get a sense of how one part of the financial services industry is adopting cloud technologies.24 The survey revealed that many banks still lack a cloud strategy or coherent and comprehensive plans for adding cloud applications and infrastructure. Not surprisingly, the lack of a cloud strategy has resulted in limited cloud deployment. Most banks are still experimenting.

Yet cloud capabilities are becoming fundamental to how the financial services industry conducts its business and grows. In this sense, not having a cloud strategy is analogous to not having a complete business strategy.

SECTION SUMMARYFinancial services firms should address significant challenges to make their cloud transformation journeys effective and efficient. The first step is developing a detailed and clear cloud strategy, which many firms do not have.

24 “Cloud and Clear - Accenture Cloud Readiness Report – Banking,” September 2018

Forward-facing financial services firms are already making significant progress in their cloud journeys Significant challenges exist, which is why

a detailed cloud strategy is recommended.

A surprising number of banks do not have detailed cloud strategies. The urgency of addressing this deficiency only

grows with time.



SECTION THREE: THE JOURNEY FROM TODAY’S IT TO THE CLOUDAlthough no two cloud implementation strategies will be the same because no two firms are the same, certain patterns are now evident among firms adopting cloud technologies. Most financial firms have at least dabbled with the cloud, but fewer have moved entire business units to the cloud. Forward-looking firms are taking a big-picture view of what a fully cloud-enabled business looks like. This includes considering the benefits of cloud-enabled solutions across Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS). In the case of capital markets firms, the use of IaaS, PaaS and SaaS varies across the value chains.

DEALING WITH TECHNICAL DEBTThe limitations of legacy systems can be a major stumbling block in cloud adoption. Such flaws, complexities, and inadequacies add up to “technical debt,” which is the cost to rework legacy IT so that the business thrives in the digital age.

The first step towards the cloud for any financial services firm is a detailed assessment of legacy systems. This assessment should capture both the limitations and potential advantages of the legacy systems. Nearly 70% of C-level financial executives surveyed in another study report that valuable data that could help advance the business is trapped in their operations.25

DIGITAL DECOUPLINGIn a recent banking survey, 69 percent of respondents said they intend to operate in a “bimodal” way—maintaining key legacy systems while transferring other systems to the cloud and adding new applications in the cloud.26 Through “digital decoupling,” firms can leverage the best of legacy systems while moving what they can to the cloud.

Most surveyed firms reported good progress in identifying which legacy apps are good candidates for early migration to the cloud. But only one-third have developed a strategy for application modernization for the cloud, and less than a quarter have conducted code-level assessments.27

25 “The 2018 North America Banking Operations Survey,” Accenture 2018.26 “Cloud and Clear - Accenture Cloud Readiness Report – Banking,” September 2018.27 “Cloud and Clear - Accenture Cloud Readiness Report – Banking,” September 2018.

Industry firms should address their technical debt in their journey to the cloud. This begins with a detailed assessment.



SECTION SUMMARYBased upon our experience and research, most financial services firms have experimented with cloud technologies. All financial firms should address the technical challenges and eventually reach a point of “digital decoupling” to leverage the best of their old IT infrastructure. With proper planning and execution, there is no reason to believe a transition to the cloud cannot be seamless.



CONCLUSION: THE CLOUD BRINGS DIGITAL TO LIFE FOR FINANCIAL SERVICES FIRMSFinancial services is one of the last big industries to enter the digital world. New regulations, new consumer demands, and growing competition are all pushing the industry to improve the customer experience and find new operational efficiencies. In this context, a migration to the cloud offers attractive benefits.

Over the next five years we expect to see intense innovation in the industry as new products, usages, and players emerge. A prerequisite for long-term “success” is the ability to adapt to new developments. Because of their specialization, cloud providers can deliver new business features to their corporate customers faster and smoother than internal IT departments. In addition, providers can combine services almost arbitrarily.

KEY TAKEAWAYSCloud transformation journeys to date suggest three important lessons for financial services firms.

NUMBER ONE: SINCE CLOUD AFFECTS EVERYTHING, EVERYONE SHOULD BE INVOLVED

Financial services firms that drive their cloud transformations across the whole business tend to see better results than those who look to IT to lead the change. The potential of cloud is so vast that every arm of a financial services firm should have an important perspective on how it should be used. An app-based approach to cloud transformation can help manage some of the complexity of the transformation.

NUMBER TWO: ENGAGE REGULATORS EARLY ON YOUR CLOUD JOURNEY

Financial services firms should take the initiative and reach out to regulators to discuss with them about cloud. This is a complex topic in a complex and highly regulated industry. If regulators are not brought on board, cloud transformations could be crippled from the outset.

NUMBER THREE: OPEN SYSTEMS ARE WINNING

Open cloud ecosystems are winning. The three biggest cloud services providers (Amazon Web Services™, Microsoft Azure™, and Google Cloud™) are all based on open ecosystems, as are their competitors. Financial services firms should make strategic use of open ecosystems to unlock the full potential of their cloud transformations.

CLOUD IS NO LONGER A CHOICE. IT IS AN IMPERATIVE.This is an interesting, dynamic time in the financial services industry. Regulatory requirements are shifting as new would-be disruptors enter the industry. Consumer expectations transforming, in finance and elsewhere. The pace of change has never been faster. It may never be this slow again.



Amid such tumult, a few things are clear. One of these is that the cloud offers irresistible advantages. For incumbents, it is also becoming more important to develop proof-of-concepts and test cloud technologies incrementally. The time is now to assess the benefits and regulatory compliance delivered by cloud solutions.

Realizing the advantages of cloud will not be quick or easy. Yet those firms able to do so can secure lasting value for themselves and their shareholders in an ever-changing digital world.



ABOUT THE AUTHORS

GUIDO GREBERAccenture Financial Services Technology Advisory, Accenture Cloud Innovation Center for Financial Services Lead

Guido Greber leads the Accenture Cloud Innovation Center (Cloud Innovation Center) for Financial Services. The Center allows financial firms to collaborate with different subject matter specialists from all cloud-related areas to pilot new ideas, develop use cases, and test environments and applications prior to implementing them. With access to leading cloud specialists and infrastructures, the Center can help firms to start or continue their journey to the cloud quickly, efficiently, at lower risk, and in accordance with regulatory requirements.

Guido has over 20 years of experience in financial services and sourcing, published several newsletters and contributed to a book on software- and business-process outsourcing. In his spare time, Guido enjoys rowing on lake Zurich and playing tennis with his son.

KONSTANTIN YERSHOVFinancial Services Solution Architect, Red Hat Switzerland

Konstantin helps Red Hat’s Swiss Financial Services customers deliver innovation and digital products and respond to market trends. He leads the Emerging Technologies architecture and Open Source adaption practices at Red Hat.

Konstantin has over 12 years of international multi-sector experience in delivering mission-critical programs and business change for large enterprises. He’s worked with senior leaders across the industry to define and implement digitalization initiatives. In his spare time Konstantin likes to travel with his wife and two kids and enjoys playing guitar and piano.



ABOUT ACCENTUREAccenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions – underpinned by the world’s largest delivery network – Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 459,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com.

ABOUT RED HATRed Hat is the world’s leading provider of open source software solutions, using a community-powered approach to provide reliable and high-performing cloud, Linux, middleware, storage, and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As a connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT.

ABOUT EUROCLOUD EUROPEEuroCloud Europe is an independent non-profit organization. Its mission is a pan-European cloud innovation hub, a completely vendor neutral knowledge sharing network between Cloud Computing Customers and Providers, Start-ups and Research centres. EuroCloud understands Cloud Computing as a part of an ongoing industrial revolution that gives Start-ups and Small and Medium Companies access to Enterprise quality IT services and On-site Enterprise IT gets access even higher quality when moving to the Cloud. The Cloud is a platform that allows the creation and delivery of entirely new digital services. Therefore, Cloud Computing is a fundamental game-changer. EuroCloud assists Cloud Providers and Cloud Customers in their cloud-migration and cloud innovation building on European quality values for a global usage. [email protected]

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