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The cloud is the next frontier for financial services
VIEWPOINT – For the financial services industry – where software is or will be key to delivering a competitive customer experience – the cloud is the future. The emergence of the cloud has driven and continues to drive changes across many industries, the benefits of which are evident.
Oliver Johnson 6 Jul 2017
Oliver Johnson is managing director, Asia-Pacific, at SimCorp
Oliver Johnson is managing director, Asia-Pacific, at SimCorp

For the financial services industry – where software is or will be key to delivering a competitive customer experience – the cloud is the future. The emergence of the cloud has driven and continues to drive changes across many industries, the benefits of which are evident.

Cloud platforms are maturing and the wealth of easy-to-use add-on features is impressive. This explosion of available services is an enabler for many start-ups that are challenging existing businesses in industries including financial services. In the retail banking sector especially, cloud technology has reduced the barriers to entry and enabled entirely new types of businesses, thus creating a highly competitive landscape.

Asset managers and private bankers have been slow to adopt the cloud but the consensus within the community is that, even at slower pace, disruption will no doubt come to them too – in particular from technology firms who may impact how funds are sold. What is common for these potential industry disruptors is that they leverage cloud scalability, but also represent ecosystems in their own right.

Asia’s quickening regulatory environment
Regulation might be a burden but it can also be a source of positive change. For example, in May the Monetary Authority of Singapore (MAS) recently announced a partnership with the International Finance Cooperation (IFC) to work together to establish and develop the Asean Financial Innovation Network (AFIN). Through AFIN, IFC and MAS plan to establish a cloud-based sandbox infrastructure for financial institutions located in multiple jurisdictions to collaborate and innovate in real time. In Hong Kong, the Securities and Futures Commission (SFC) recognizes there is an increasing focus on regtech and fintech, and that regulations are developing at a much faster pace than ever before. While investment managers are cautious about adopting cloud platforms in part due to the security and compliance issues, regulations are clearly encouraging a faster pace of innovation.

Cloud platforms may not be as dangerous as perceived by the industry. Public cloud platforms are likely to be far more secure than any in-house system due to the scale which these public platforms operate at. Due to the massive scale, Amazon, Microsoft and other big players are able to secure the best and largest security teams, obtaining more exposure in the fast-moving security threat space and are thus able to come up with counter-solutions in the fastest time.

Embracing the new technological frontier
The cloud is coming and will disrupt the financial services industry whether we want it or not. This can be observed in retail banking, and it will pervade the rest of the industry, including asset management and private banking. In a future not so far away, more financial service providers will find themselves adopting the cloud in a bid to reduce IT costs to remain competitive, to satisfy the demands of clients (increasingly from the digital native generation) who are benefiting from the technology in other industries, and to keep up to date with vendors simultaneously moving into the cloud.

The pressure is on from all directions; perhaps at different speeds, but they are coming no less. Instead of waiting for disruption to arrive at your doorstep, financial services providers should begin anticipating and building cloud-ready capabilities in order to capture more opportunities in the digital-first space.

Oliver Johnson is managing director, Asia-Pacific, at SimCorp

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