This year IDC reported that the securities and investment will be the earliest adopters of cloud computing while banking industry may lag behind because of various regulations that shapes the industry. (http://www.microsoft.com/en-us/news/download/features/2012/IDC_Cloud_jobs_White_Paper.pdf)
But most experts agree that financial services industry will be benefiting immensely from cloud computing.
Is such phenomenon evident in the market? Believe it or not, there exists a 'FinCloud Institute' (http://www.fincloudinstitute.org/) whose mission is " to provide research-based insights into how Cloud Computing strategies are being implemented by financial institutions.". Below is the picture of the institute itself:
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Yes, you guessed it right! Cloud Computing is a welcomed term in the financial services world. Don't get me wrong! The industry is in the early stage of adoption and not all firms are moving their IT need to cloud yet. But the industry is intrigued by the possibilities that cloud promises and is evaluation the technology with great interest.
The following diagram depicts the current breadth of cloud computing usage in the financial services industry:
(http://www.wallstreetandtech.com/it-infrastructure/224200533?pgno=2)
The above diagram reveals an interesting fact to me. The current usage shows that Financial Services uses cloud computing for a wide range of applications including risk management, price modelling and valuation and wealth management applications. If you think about it, cloud computing is not so different compared to outsourcing from the perspective of risk. Companies have been reluctant to outsource processes that are strategic for the company and needs subjective decision making because they are hard to codify
("Getting Offsoring Right", Aron R. and Singh, J. V., Harvard Business Review, 2005, 83 (12), 135-143) While back-office operations and client report is easily codifiable, risk management and wealth management have traditionally not been outsourced with a few exceptions. The above diagram shows that while 12% of the companies uses cloud for risk management, 17% of the companies use cloud for back office operations. The numbers are not that different and may make cloud computing more relevant in the future because users are willing to move functions with more operational and structural risks to cloud.
The biggest enabler for financial services industry seems to be the scalability aspect followed by cost saving. Take a look at the following diagram: (http://www.wallstreetandtech.com/it-infrastructure/224200533?pgno=2)
In 2011, NYSE Technology revealed a plan to build a custom cloud for financial markets (http://meship.com/Blog/2011/06/01/nyse-builds-a-custom-cloud-for-financial-markets/) with EMC Corp. and VMware INC. This cloud aims to provide a platform that will aggregate exchanges, broker dealer and buy-side participants. The stakeholders will have access to historical market data and analysis. Such a strategy will look into reducing information assymetry among buyers, sellers, small firms and large firms and in the process will make the market more efficient and friction free. Below is a video that explains NYSE technologies focus:
Cloud computing promises to be a great enabler for trading services since it can make the trading process faster. Currently, trading technology operates on millisecond scale (http://www.bis.gov.uk/assets/foresight/docs/computer-trading/11-1222-dr3-technology-trends-in-financial-markets) . In other words, it takes milliseconds to a price data packet or r volume data packet from exchange to the traders' desk. By using proximity server and real time computing power, cloud computing promises to bring down the trading time to microsecond in the near future.
After the financial meltdown of 2008, the relevance of cloud computing has increased manifold for financial services industry. Especially the governance and compliance issues of financial services industry can be addressed by using cloud computing since the technology is a great aggregator and can make the idustry more transparent. There is ongoing research (http://www.iseing.org/emcis/emcis2010/Proceedings/Accepted%20Refereed%20Papers/C70.pdf) that uses service software engineering to lower the political, social and technical barriers and to build a global infrastructure for financial services.
Here is a video that explains how cloud computing can address specific needs for finance industry:
But most experts agree that financial services industry will be benefiting immensely from cloud computing.
Is such phenomenon evident in the market? Believe it or not, there exists a 'FinCloud Institute' (http://www.fincloudinstitute.org/) whose mission is " to provide research-based insights into how Cloud Computing strategies are being implemented by financial institutions.". Below is the picture of the institute itself:
.jpg)
Yes, you guessed it right! Cloud Computing is a welcomed term in the financial services world. Don't get me wrong! The industry is in the early stage of adoption and not all firms are moving their IT need to cloud yet. But the industry is intrigued by the possibilities that cloud promises and is evaluation the technology with great interest.
The following diagram depicts the current breadth of cloud computing usage in the financial services industry:
(http://www.wallstreetandtech.com/it-infrastructure/224200533?pgno=2)
("Getting Offsoring Right", Aron R. and Singh, J. V., Harvard Business Review, 2005, 83 (12), 135-143) While back-office operations and client report is easily codifiable, risk management and wealth management have traditionally not been outsourced with a few exceptions. The above diagram shows that while 12% of the companies uses cloud for risk management, 17% of the companies use cloud for back office operations. The numbers are not that different and may make cloud computing more relevant in the future because users are willing to move functions with more operational and structural risks to cloud.
The biggest enabler for financial services industry seems to be the scalability aspect followed by cost saving. Take a look at the following diagram: (http://www.wallstreetandtech.com/it-infrastructure/224200533?pgno=2)
In 2011, NYSE Technology revealed a plan to build a custom cloud for financial markets (http://meship.com/Blog/2011/06/01/nyse-builds-a-custom-cloud-for-financial-markets/) with EMC Corp. and VMware INC. This cloud aims to provide a platform that will aggregate exchanges, broker dealer and buy-side participants. The stakeholders will have access to historical market data and analysis. Such a strategy will look into reducing information assymetry among buyers, sellers, small firms and large firms and in the process will make the market more efficient and friction free. Below is a video that explains NYSE technologies focus:
Cloud computing promises to be a great enabler for trading services since it can make the trading process faster. Currently, trading technology operates on millisecond scale (http://www.bis.gov.uk/assets/foresight/docs/computer-trading/11-1222-dr3-technology-trends-in-financial-markets) . In other words, it takes milliseconds to a price data packet or r volume data packet from exchange to the traders' desk. By using proximity server and real time computing power, cloud computing promises to bring down the trading time to microsecond in the near future.
After the financial meltdown of 2008, the relevance of cloud computing has increased manifold for financial services industry. Especially the governance and compliance issues of financial services industry can be addressed by using cloud computing since the technology is a great aggregator and can make the idustry more transparent. There is ongoing research (http://www.iseing.org/emcis/emcis2010/Proceedings/Accepted%20Refereed%20Papers/C70.pdf) that uses service software engineering to lower the political, social and technical barriers and to build a global infrastructure for financial services.
Here is a video that explains how cloud computing can address specific needs for finance industry:
Some recent adoption stories of cloud computing in financial services industry can be found in the fincloud website (http://www.fincloudinstitute.org/). Recently WePay hired the PCI-complaint cloud services of Layered Tech as an online payment platform. A consortium of eight regional banks chose Axletree to avail SaaS based SWIFT connectivity to increase security and reliability while decreasing cost of ownership. Confirmation.com developed a cloud based solution to prevent false information reporting an collusion in the financial services industry.
For me, the most interesting proposal so far has been how a cloud based iPad App can enable real time trading. Essentially cloud can provide fully interactive research tools and can stream charts news, data and real time data to mobile phones and iPads to increase the devices' trading capabilities. The cloud based app makes the interface of iPad and mobile phones much more simplistic and easy to use. Here is how it looks like (http://media.wiley.com/Lux/55/235955.image1.jpg)
Let me finish this post by discussing the security issue that prevents the financial industry to adopt cloud computing at a greater rate. Because of various regulations that are characteristics to the industry, the companies are extremely cautious about cloud computing. Since the technology is new and executives still lack the necessary knowledge to understand the technology, they are comprehensive about it. But with time, executives are converging towards the consensus that they have been using third parties for a long time for many of their operations and business functions and cloud computing actually is less risky than a third patry who is located offshore. Such a realization will bring down the resistance in the financial services industry towards cloud computing. With this comment, I will finish this post and let you watch the following video that explains the current state of readiness of financial industry towards cloud computing:
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