Financial service organizations are facing a time of great change and opportunity. They’re moving away from legacy infrastructure and embracing the transformational capabilities of cloud technologies. Their cloud migrations make vast amounts of data available for new tech that will help them maintain their competitive edge, especially as they face growing pressure from challengers and new FinTechs—banks born in the cloud.
As Jamie Dimon, chairman and chief executive officer of JPMorgan Chase, wrote in his 2020 letter to shareholders, refactoring and re-platforming banks’ data “makes data enormously valuable and digitally accessible [for applications such as artificial intelligence and machine learning]. All of this work takes time and money, but it’s absolutely essential that we do it.”
Not only is that work essential, it’s essential that the migration to cloud is done efficiently, with an eye toward cloud cost optimization that helps streamline operations—immediately and in the long-term. But that isn’t always happening. What’s going on and how can financial institutions improve their cloud migration goals?
Trends in Cloud for Financial Services
The trend toward cloud within financial services has been clear in recent years; COVID-19 added momentum. As found in the Tech Spending During COVID-19: The Road to Normalcy in 2021 report from financial services research and advisory firm Celent, one of the key trends impacting banks as a result of the pandemic is “an acceleration of digital transformation and cloud migration timeline by around 2 years.” Many are “reinvesting into digital customer experience” and into improving some of the shortcomings “in digital delivery” that the pandemic highlighted.
When evaluating financial services organizations against other organizations of comparable size and across industries, noteworthy trends appear. As found in the Flexera 2021 State of the Cloud report, financial services organizations:
- Are more likely to run multi-cloud and hybrid. Among survey respondents from organizations with more than 10,000 employees, 98% of those in financial services report using multi-cloud, compared to 94% of all orgs this size; 91% of those in financial services report using hybrid cloud approaches, compared to 82% percent of all organizations this size. This higher rate of multi- and hybrid-cloud usage within financial services may be due, in part, to some industries (such as consumer products, government, retail, and transportation) not having the same “technology DNA” that financial service organizations often have.
- Are less “cloud mature.” Among respondents with more than 10,000 employees, within financial services, only about 1/3 (31%) were advanced users of cloud, compared to 2/3 (66%) overall. Among a few important contributing factors to this is that, because their exposure is so great, financial services orgs have been reticent to adopt new technologies. Rather than be the pioneers, they take a “wait and see” approach, evaluating if and how well others have adopted a new service or technology before they are willing to integrate it. As such, from a cloud migration and usage perspective, they’re often less mature or less experienced.
- Spend more. 63% of financial services organizations with more than 10,000 employees spend more than $12 million a year on public cloud, compared to only 49% of all organizations with more than 10,000 employees. Multiple variables likely contribute to why financial institutions are spending more on public cloud. One possible cause: with a lack of maturity in the cloud comes non-optimal cloud configuration, leading to wasted—or at least non-optimized—cloud spend. The result: spending more than they should—and more than comparably-sized organizations that are more mature in their cloud initiatives.
Cloud Cost Optimization for Financial Services
Clearly financial services organizations have many good reasons to move to the cloud, including tapping into the power of AI/ML, enhancing customer experiences, improving operational efficiencies, launching innovative initiatives, and more. But having a lot of use cases that are good fits for cloud technology can mean that a lot of data and workloads are thrown there quickly. This can lead to significant waste of cloud expenditures. Today, public cloud spend is over budget by an average of 24% and predicted to increase in the coming year, according to the Flexera 2021 State of the Cloud report.
Consider these guidelines as part of your organization’s cloud initiatives:
- Plan and prioritize the migration. A lift-and-shift approach may not be the most efficient approach. Consider rearchitecting, where necessary, so that what you move is suited to your cloud environment as well as possible. A cloud migration technical assessment can help pinpoint where rearchitecting is appropriate; it can help prioritize which applications should be migrated when.
- Understand application dependencies. Map the relationships between the applications (including customer-facing apps or applications with shared reporting, for example) that tap into your data. This helps identify what to migrate, the networking impact, and the dependencies that exist across business services.
- Consider multiple approaches to ongoing cloud cost optimization. There are multiple automated cloud cost optimization policies that can help save money on cloud costs. Begin by identifying ways to get rid of idle resources (such as deprovisioning unused storage or shutting down instances after hours). Multi-cloud management tools can also help rightsize cloud instances, monitor for and eliminate waste (using the lowest-expense clouds and/or regions), and finding the maximum provider discounts available, based on usage and on the various discounts offered by cloud providers such as AWS, Azure, and Google.
Moving to the cloud is a must today for financial services. Struggling to handle cloud initiatives—and expenses—doesn’t need to be part of the equation.
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