- New research shows, however, just over a quarter (27%) of banks expect to migrate at least half of their business infrastructure (systems and/or applications) to public cloud by 2022
- COVID-19 has reinforced industry sentiment that cloud is the most transformative banking technology to adopt – ahead of AI and data analyticsCopy Block
The majority of UK banks surveyed (80%) have moved less than 10% of their business infrastructure to public cloud, according to EY’s new UK Banking Cloud Adoption Index; potentially missing out on valuable cost savings and the opportunity to accelerate their digital transformation and strengthen resilience.
The study, based on interviews with five of the largest UK banks and six specialist/challenger banks¹, indicates that while the sector universally recognises the benefits of public cloud, just a small minority of business infrastructure has so far been migrated. Banks acknowledge that cloud migration will give rise to increased speed to market and agility (80%) and significant cost optimisation (69%) – and widely believe cloud to be the most transformative technology of the next few years, ahead of AI and data analytics.
This view will only have been reinforced by the operational challenges of the first COVID-19 lockdown and the rise of remote working. Over a quarter of banks (27%) expect to migrate at least half of their business to public cloud by 2022, although significant barriers to more widespread adoption persist. UK banks identified data security (87%), regulatory risk (67%) and third-party risk (60%) as the three top risks preventing more rapid cloud adoption.
Ali Hamid, UK cloud leader at EY, comments:
“Our research shows that while banks recognise the benefits and transformative capabilities of public cloud, many have only migrated a small amount of their business infrastructure as yet. However, we estimate that moving operations to public cloud could reduce a bank’s IT bill by around 30% - a critical cost saving in this time of economic downturn. For greater adoption across the industry, a number of risks – both real and perceived – need to be addressed.”
EY’s research has identified three main risk factors that are hampering UK banks from migrating more of their business onto the public cloud:
- Perception around data security risk
Given the sensitivities and reputational risk posed to banks around storing data, it is unsurprising that this was found to be the biggest concern by 87% of banks, and one of the main barriers to more widespread adoption.
Being fully compliant and adhering to all the regulatory rules is another key concern for banks when thinking about moving their business onto the cloud (67% cited this).
- Risk of third-party vendors
Sixty per cent of banks view third-party risk as an obstacle to greater levels of cloud migration. Public cloud providers recognise their business depends on keeping customers safe and have enhanced security measures in place, but banks must ensure they have their own checks in place and are comfortable that the vendors they rely on have all the necessary certifications in order to meet their regulatory requirements.
Ali Hamid continues: “There are clearly some residual concerns around data privacy and regulatory compliance. However, regulators have set out clear guidance for firms on this issue, and public cloud’s lower risk of systems failure can mean it is more secure than organisations’ own IT systems. A key goal going forward is for the banks and regulators to work together to establish the correct framework and the additional controls that need to be put in place to ensure data is safe and there is confidence in the platform.”
Banks’ current cloud plans focus on front office operations
The survey shows that banks recognise the potential cost savings to be derived from cloud adoption, with 89% believing the cost savings delivered will even increase over the coming five years. Currently, however, cloud migration is centred on the front office (100% of banks), with attention focused on the ability to deploy new apps and solutions quickly to improve customer service and competitive capability. Of the proportion of banks’ business that has migrated to public cloud today, only 34% of middle office and 64% back office operations have moved to the cloud.
Tom Groom, Financial Services Strategic Cost Transformation Leader at EY, concludes:
“Moving from legacy systems to the cloud involves considerable initial investment, which is a big decision to make at any time, but especially so now. It also requires a mindset shift for many. But while there are initial hurdles to overcome, we believe there are significant benefits to be gained via the scalability and flexibility that cloud brings in addition to absolute cost savings, particularly important given the current climate. Banks should look to adopt a holistic cloud strategy across their front, middle and back office operations to realise the full value, so that the focus is on transforming their business end-to-end, not just upgrading their IT systems.”