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Asia's financial institutions need to embrace the cloud

ASIA'S digital transformation has had a massive impact on the region's economies. This is largely powered by the increased adoption of cloud technology, which has been gaining serious traction in recent years. According to the latest IDC Worldwide Semiannual Public Cloud Services Spending Guide, investment on public cloud services and infrastructure in Asia Pacific excluding Japan is forecast to reach US$15.1 billion this year, a 36 per cent increase from 2017.

Cloud computing is also coming of age in financial markets. The cloud not only provides computational power on demand, but also shifts the fundamental expense from capital to operational. This means tighter control and more transparency in terms of costs, avoiding the constant cycle of buying, depreciating and disregarding hardware.

The use of cloud also serves the need of rapidly changing businesses, making it easier for banks and financial institutions, as well as their regulators, to monitor, standardise and audit data.

Yet these institutions have largely avoided entrusting their data to the public cloud, instead supporting large in-house IT teams and until recently, building their own data centres.

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The IDC MaturityScape Benchmark found that most banks in Asia are in the first stages of cloud maturity, characterised by a higher preference for private over public cloud.

They have good reasons for this. The data that financial institutions handle is highly sensitive and, if compromised, could present massive threats to the organisation. Besides, companies might want to go on the cloud, but are unsure of how to do so in a compliant manner. The outsourcing of such critical functions is often subject to stringent regulations, and many countries have outdated data protection laws that do not take into account the cloud.

But change is on the horizon, with DBS becoming the first Singapore bank to plug one of its data centres into the cloud late last year. Slowly but surely, banks and financial institutions are coming around to the service, recognising the potential it has to offer. Consultancy Celent estimates that in the next three years, financial services firms are expected to triple workloads from traditional data centres to cloud data centres. Cloud services are making a compelling business case for them, especially with the ever-increasing need for and use of data.

With the explosion of data, financial institutions first need to realistically assess their own capabilities against those of a cloud provider as the cost of information security escalates. This is on the back of the heavy investment and resources by major cloud providers to enhance security, something that these institutions will not be able to match. Instead, they have the flexibility to maintain autonomy over the security of their clients' data, while the core fortress of the cloud is controlled by the cloud provider.

The ability of the cloud to run machine learning algorithms has also become apparent in recent months. These algorithms have the ability to crunch through massive datasets to solve problems and gain insights, driving efficiencies in post-trade activities like reporting, compliance and risk management. This is where in-house computing resources might be unable to compete, giving those on the cloud a competitive edge.


Many firms are unwilling to take the first step. They foresee an increase in spending when they first switch over to the cloud due to the high initial cost of changing processes or hiring the right talent. But making the switch could lead to cost reduction in the long term. Financial institutions will only be charged for the transactions they process, giving them the ability to scale to whatever volume is required without the burden of an ongoing server cost. For an industry that designs fixed capacity to meet rare volatility spikes, this is a source of huge capital savings while reducing redundant spare capacity.

Research firm IDC Financial Insights predicts that the biggest global banks will save US$15 billion by 2019 from cloud adoption, cutting technology infrastructure costs by 25 per cent.

And then there's regulation. Given the industry regulations around data privacy and security, many institutions have naturally assumed that regulators would not permit the use of cloud services. But increasingly, regulators are recognising the cloud as just another form of outsourcing and have adapted guidelines to take the cloud into account.

The Monetary Authority of Singapore has added a new section on the use of cloud services in its Guidelines on Outsourcing Risk Management to financial institutions, while the Institute for Development and Research in Banking Technology, established by the Reserve Bank of India, has also published FAQs recognising the benefits of cloud services for Indian banks.

Of course, switching to the cloud can be easier said than done. Bigger institutions are often too invested in their own infrastructure and technology, or are already locked into multi-year outsource contracts. This can give fintech startups more agility to leverage the benefits of cloud sooner than incumbent firms. But with increasing cost pressure and exploding data volumes across the industry, it is imperative for established financial institutions to start thinking about their own cloud strategy, or risk being left behind in the very near future.

  • The writer is group head of government Affairs at Nex Group.