Modern banking and financial services industry as a whole are moving through unprecidented times filled with new threats, waves of competition and stringent regulations that can be quite different in different parts of the world. Rather than shy away, more FinServ companies are embracing more complexity by changing how they think and use new data technologies to manage risk and roll out new innovations in order to stay competitive.
“It’s a world built on complexity where you have to manage risk and still be daring,” said Sean O’Dowd, global financial services strategy and solutions manager at hybrid multicloud software provider Nutanix.
With roots tracing back to medieval times, particularly in places like Florence, Vencie and Genoa, Italy, financial institutions have endured for centuries – many died trying – through might and cunning.
That worked for centuries.
By 2016, research firm Deloitte reported that nearly 90% of the financial services industry (FinSev) believed digital technologies were disrupting the status quo. Six years later, reports showed that financial services lagged behind other industries adopting hybrid multicloud IT operations, the preferred operating model for more IT leaders, according to the 2023 Enterprise Cloud Index report.
That’s not the case anymore.
“I think it'd be fair to say we're a multi-cloud, multi-discipline environment” Thad Széll, Head of Infrastructure Architecture and Cloud at Deutsche Bank said in a September 2023 interview with The Stack.
Deutsche Bank has assets worth over €1.3 trillion, and €821 billion under management and it exemplifies how IT leaders the financial industries are rapidly evolving their digital capabilities and building complex interconnected collections of infrastructures and services.
“For any application moving to cloud, Google is our preferred option, but like any financial services institution, we're heavily regulated, so we have demands for on-prem,” he said.
In that interview, Széll explained how his team relies on Microsoft Azure, OpenShift and digital data services like Spanner and BigQuery. That wide mix of IT capabilities allowed them to migrate more than 200 applications to the cloud as the bank moves to “co-innovate new products and services…with promising start-ups and fintechs that can support the bank’s client and transformation goals.”
These efforts are bringing new understanding of how IT infrastructure, applications and data all work together while maintaining tight alignment with regulatory requirements.
Embracing Complexity for Competitive Edge
FinServ CIOs recognize these complexities are becoming more intense, according to O’Dowd.
“They’re feeling pressure to manage through it all,” O’Dowd said. “They see the constant wave of headlines about big data, blockchain, cloud, generative AI and cybersecurity breaches.”
This pressure is backed by the rise of new challenges from innovative competitor and the need to understand new options and capabilities offered by technology vendors and service providers.
“Financial services are facing new competition not only from within their industry but from others like FinTech and big tech firms, including Apple with their Apple Pay,” said O’Dowd. “It’s coming from all sides like never before.”
Wealth management services, investment banking, consumer credit and lending service are using data technologies to bring new financial offerings to market. These technologies present more touchpoints and opportunities for consumers to see, learn and engage online. A J.D. Power’s 2023 satisfaction study showed only 38% of customers believe brick-and-mortar banking branches are essential, so consumers are increasingly managing their finances online and through mobile applications.
“Because this competition is digitally innovative and can understand consumer behavior, they’re able to intercept customers before they decide to walk into a bank,” O’Dowd said. “This is driving FinServ companies to innovate in order keep customers engaged and avoid losing margin to competitors.”
He said the FinServ industry experienced some dramatic shifts in recent years. During COVID, consumers used credit cards and debit card to make more purchases online. And some reports showed that 50% of consumers used their bank’s mobile application
At the same time, IT decision-makers within FinServ companies must balance that need for performance with concerns for cost and regulatory compliance.
O’Dowd and his team help IT professionals understand how modern IT technologies can help FinServ tackle complexity around developing new applications and managing more data while complying with consumer behavior changes and industry regulations around the world. He also learns from Nutanix customers, including Société Générale, Nymbus, Servus Credit Union, Penn National Insurance and many others.
“FinServ companies are benefiting from the hybrid multicloud systems that help bring new digital capabilities to market quickly and provide flexibility for scaling up or down resources when needed, while plugging into new updates and capabilities when they’re ready,” he said.
“They want cost controls, adgility and security, which all require good visibility across everything they’re managing.”
Széll explained his IT system as “an ephemeral environment” where workloads can run in public cloud or private data centers and quickly be moved between different infrastructures.
“It’s very much the fungible, mainly kind of PaaS and IaaS services that we believe are best placed in Google, but which ultimately could be somewhere else if required,” he told The Stack. “The benefit comes in not muddying the purist environment in Native, but letting us take advantage of non-Native services in the re-host environment.
FinServ IT Finding the Right Balance
Many larger financial institutions plan to adopt a hybrid cloud IT model involving the strategic use of both public and private cloud services and their own data centers, according to a recent cloud report from the U.S. Department of the Treasury.
Analysis by IBM and BIAN revealed that 79% of banks are in the foundational stages of their hybrid cloud journeys. The report showed that those institutions that achieved the best financial performance are those that prioritized IT architectural models such as the hybrid cloud model. This approach gives IT teams flexibility to adjust to changing data storage and application needs that can run on private cloud servers or in public cloud services.
Prior to the widespread adoption of hybrid cloud for FinServ, many institutions relied primarily on external service providers to maintain their cloud posture. This means that banks, investment firms, insurance companies and other financial service institutions were trusting third-party cloud vendors to host crucial customer data. They were already exposed to potential outages that otherwise could be mitigated by having the right balance of private or semi-private cloud and multiple public cloud systems, acccording to O’Dowd.
“Resiliency and managing risk are core necessities for FinServs and that’s why they see hybrid multicloud as critical,” said O’Dowd. He said there’s also the notion of concentration risk.
“Having too much in the cloud might be an IT risk, but also a market risk,” he said. “Outages can cause market blips or payment interferences.”
He said the Europen Union (EU) has drafted regulations called the Digital Operational Resilance Act (DORA) and the US has sound guidance practices addressing this issue, too.
Beyond managing risk, IBM and BIAN research reported that proper integration of a hybrid cloud model can create up to 20x the business value compared to the realization of the cloud as a standalone strategy.
Financial Services Companies Are Preparing for Change
While FinServ and government were initially hesitant to adopt cloud services, that’s no longer the case, according Andy Bates, Global Cyber Alliance Executive Director at Nutanix.
“I think now that there’s a general acknowledgement that the faster you can move to cloud the better off you are,” Bates said in a podcast exploring what FinServ security experts can learn from other sectors.
O’Dowd sees many FinServ leaders stepping up their game. He said industry IT leaders can learn from Deutsche Bank’s forward-looking approach to hybrid multicloud. It takes a mindset for embracing complexity with the right bag of tools and a close relatioinship with vendors.
Széll told The Stack that his team takes a platform by platform approach. They look for the optimal solution for their skill set as well as their ability to grow and develop a particular platform. All the while they want what they build to run somewhere else in the future, which could mean moving thinigs off of public cloud services.
“We've also been involved in running our own infrastructure and our own applications for so long that we're very good at managing our applications to the regulations that we know about within-country,” Széll said.
"We've got to look at data sovereignty…at where our physical applications are hosted and what protection we can put around them not being used in other countries or not being utilized or seen in other countries,” he said.
He keeps an eye out for vendor lock in, so there’s an exit strategy. His team must be able to move to another infrastructure for whatever reason.
With productive and communicative partnerships between cloud providers, FinServ companies, can build complex data systems that are secure, scalable and cutting edge, O’Dowd said.
“FinServ IT teams are in different stages of their digital transformation, but there’s a lot of collaboration and innovation moving the industry,” he said.
“It’s an industry brimming with data and the technologies to create deeper and more lucrative relationships with customers.”
Editor’s note: Learn more about Nutanix Cloud Platform, solutions for FinServ and Project Beacon, Nutanix’s vision for delivering data-centric PaaS level services that aren’t tied to a single infrastructure provider.
Ken Kaplan is Editor in Chief for The Forecast by Nutanix. Find him on Twitter @kenekaplan.
Michael Brenner contributed to this article. He is a keynote speaker, author and CEO of Marketing Insider Group. Michael has written hundreds of articles on sites such as Forbes, Entrepreneur Magazine, and The Guardian, and he speaks at dozens of leadership conferences each year covering topics such as marketing, leadership, technology, and business strategy.
© 2023 Nutanix, Inc. All rights reserved. For additional legal information, please go here.