1 Apr, 2021

The impact of the Cloud on the Financial Services Industry


By Matthias Baetens, 01/04/2021

Over the past fifteen years we’ve witnessed a significant adoption of Cloud-based systems by corporations. We highlight below some of the advantages enjoyed by the financial services industry today.

In the broad sense of the word, the Cloud is the set of computing systems allowing one to use (potentially shared) resources on-demand, offered by third-party Cloud providers (e.g., Google Cloud Platform, Microsoft Azure, Amazon Web Services) over the public internet.

The drive to efficiently share computing resources has been around for decades and we can see cloud computing as its latest incarnation. The public cloud as we know it came to prominence when Amazon incorporated Amazon Web Services around fifteen years ago, and the industry has been growing ever since.

According Gartner end-user companies’ expenditure on cloud resources exceeded $250 billion in 2020 and growth of 18% is expected for 2021, with COVID-19 being an additional driver in adoption as more and more companies need to accommodate remote-working set-ups.

So how has the advent of cloud computing impacted the Financial Services Industry? Initial adoption in our industry mainly came from FinTech start-ups that were born “Cloud-Native” – having no information-technology infrastructure themselves. In more recent years, however, larger incumbents have moved dependencies from in-house computer resources and started to adopt the public cloud – amongst them for Deutsche Bank which will co-innovate alongside Google Cloud and HSBC which has adopted a multi-cloud strategy with the three major cloud providers.

What are some of the draws for companies to adopt cloud?

  • Increased reliability and resilience: By having multiple geographically distributed fail-over data centers with Cloud providers, the direct dependency on a company’s local set-up is removed, allowing for more seamless disaster recovery processes. Separately, when a company leverages Cloud infrastructure, they, in turn, are also able to offer a more reliable platform for their own clients.
  • Cost effectiveness:  The Cloud provides for a reduction in up-front capital spending on physical hardware; it allows for a pay-as-needed contract structure. More specifically, businesses historically needed to anticipate peak usage and purchase physical hardware to meet anticipated needs (with human capital to support).  With a migration to the Cloud, physical hardware on premise is no longer needed as this sits in remote data centers with Cloud providers; resource use can now be adjusted real-time and paired with more flexible pricing schemes.
  • Scalability: The Cloud allows for enhanced and faster processing capabilities allowing for the ability to scale business functions. As previously mentioned, the Cloud providers allow access to more hardware that in turn allows an asset manager for example, to run more (detailed) analyses on portfolios in a shorter amount of time. 
  • Security: Cloud providers hold themselves to extremely high security standards. Data centers maintained by public cloud providers have dedicated teams securing the premises against invaders and are better designed to withstand the forces of natures. Furthermore, they have dedicated teams that actively look for vulnerabilities in their software and systems. A noteworthy example is the Meltdown vulnerability discovered by Google’s Project Zero.
  • Enabling innovation and technological transformation: The Cloud provides an avenue for easier experimentation built on the latest technologies, and more seamless (data) integration between different business units and systems.

Where there are many advantages to adopting the Cloud, there are also challenges and shortcomings with this technology that seemingly evolves daily. These include having less control as these functions are now outsourced, high switching costs between providers, and less customizability.

In light of these aforementioned challenges, for Arabesque, adopting the Cloud has been particularly helpful on multiple fronts. We have been able to scale our equity coverage universe, reduce expenditures by leveraging cloud service provider hardware, and optimize hiring and training through adoption of standardized “known” toolsets.  For further information on how we leverage the cloud, see a joint case study our Arabesque AI research team conducted with our primary Cloud provider, Google Cloud.