How are Financial Institutions Planning to Invest in Public Cloud Technologies?
In its annual Banking Priorities survey, CSI asked bankers about the issues most likely to affect the industry in 2023. The rise of open banking, cloud services, enhanced cybersecurity and new regulatory concerns have broadened the areas of focus financial institutions must consider. Bankers have lingering questions about critical aspects of modern technology, including APIs, Banking as a Service (BaaS) and the public cloud.
What is the Public Cloud?
Public cloud is an IT model in which on-demand computing services and infrastructure are managed by a third-party provider and shared with multiple organizations using the public internet. A private cloud is an infrastructure dedicated to one user organization. For an in-depth exploration of private and public clouds, read our blog.
Businesses in a variety of industries use the public cloud every day. Two common examples of its business usage include Zoom and Microsoft 365. Both systems are housed offsite, operated by a third party and accessed via the internet on the device of the user’s choice. Unlike earlier software distribution models, users aren’t limited to downloading an application to one dedicated device.
Download the 2023 Banking Priorities Executive Report for insight into the challenges and emerging opportunities bankers identified, as well as the strategies community institutions are deploying to stay competitive.
Why Should Financial Institutions Embrace the Public Cloud?
If the provider is a trusted resource within the financial services industry, the public cloud yields several benefits for financial institutions, including:
- Cost optimization: By migrating IT systems to the public cloud, institutions can reduce costs associated with maintaining their IT infrastructure. Instead of investing in expensive hardware, software and recurring onsite implementation and maintenance costs, institutions pay for the resources or services they need.
- Scalability: Usage can be scaled up or down based on an institution’s needs. If an institution experiences an increase in demand, it’s easy to add services or resources as needed.
- Security: Third-party providers invest heavily in security controls and consistently improve their cybersecurity measures. Cloud systems provide a framework for enhanced monitoring capabilities, allowing customers to utilize real-time monitoring to detect and remediate more incidents due to enhanced logging and alerting options.
- Regulatory compliance: By teaming up with a provider familiar with the financial services industry, institutions can streamline the regulatory process and provide documentation required by auditors and regulators.
- Technology deployment: Implementation of cloud technology is quick and easy, allowing institutions to take advantage of the latest tools and avoid being tied to legacy systems.
- Business continuity: Operational redundancy is included with some cloud environments and easily configurable with others. The cloud provider manages the availability of the delivery infrastructure, so you can focus on ensuring access to the services.
- Remote work: Employees can securely use managed cloud-based applications no matter where their office is located. The public cloud also allows institutions to foster collaboration and communication, streamlining operations with cloud-based tools like Microsoft Office 365. Having the right controls in place for your cloud systems and data stored in the cloud—including multi-factor authentication and mobile device management—mitigates risk and ensures users can work remotely in a secure, compliant way. To further reduce risk, ensure you have visibility into your cloud environment through cybersecurity monitoring.
How Institutions Plan to Invest in the Public Cloud
So, how are bankers who participated in this year’s survey using cloud technology? More than half of bankers (54%) either don’t plan to invest in the public cloud in 2023 (21%), or don’t know or need more information to answer the question (34%). The latter equals the same percentage of bankers (34%) investing in one or more cloud technologies.
Here is where those investments will be spent:
- Data backup and recovery (18%): Usually hosted by a third-party cloud provider, a cloud recovery solution acts as an “as needed” safeguard during a disaster. Cloud servers can be used in tandem with a physical backup (known as a hybrid system) or as a complete data backup of your entire IT environment. Cloud disaster recovery is an option for migration if institutions aren’t ready to move all of their servers to the cloud. This opens the door to a long-term migration strategy, so an institution already has a cloud presence when other assets expire or depreciate.Storing data and applications in the cloud also allows institutions to ensure business continuity, avoid disruptions and minimize downtime resulting from natural or manmade disasters, cyberattacks or technology failures.
- Cybersecurity solutions (17%): Leveraging cloud-based cybersecurity solutions allows institutions to enjoy the advantages of the public cloud, including flexibility, scalability and availability. Since these solutions are cloud-native, they do not take up valuable computing resources. Since many cloud-based cybersecurity solutions are managed by third-party providers, institutions can leverage their expertise and security controls. This is especially beneficial for smaller community financial institutions that may not have the in-house talent to manage their cybersecurity systems.
- IT infrastructure (16%): Maintaining a secure, reliable and compliant IT infrastructure is critical for all financial institutions. By hosting servers and desktops in a highly available and secure public cloud infrastructure, institutions can strengthen compliance, deliver a uniform desktop experience and enjoy benefits that include high availability and redundancy.
Bankers are also planning to invest in cloud technologies for digital banking (11%), lending (10%) and core processing (7%).
Changing Perceptions of the Public Cloud
Going into 2022, about 28% of bankers planned to invest in one or more cloud technologies. Compared to 34% in this year’s results, bankers appear to be warming up to the idea of the cloud. However, the percentage who don’t plan to invest in the cloud is identical to last year at 21%, representing a lost opportunity for increased operational efficiency.
While many enjoy the advantages of the public cloud, there are some considerations that financial institutions may have before embarking on their cloud migration. Data privacy and security often top the list of cloud concerns, but these challenges are easily mitigated through due diligence when selecting a cloud provider and properly implementing security controls and tools available in the cloud.
Your institution should understand the specifics of any potential partnership, including where data will be stored, who has access and what security protections are in place. When developing your cloud migration strategy, it’s also helpful to review your existing technology and ensure your plan supports your business goals.
Learn More about Bankers’ Priorities for 2023
From cost optimization to scalability, the public cloud offers a variety of benefits to financial institutions. As the financial services industry continues relying on digital tools, the public cloud will play a transformative role in ensuring institutions can meet consumer needs.
Learn more about bankers’ perceptions of the cloud, cybersecurity challenges, digital technology priorities and more by downloading the 2023 Banking Priorities Executive Report.
Ben Reeser is a senior solutions architect at CSI.