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Why the financial services industry should go cloud native

Understanding cloud native, the main obstacles keeping financial services firms from achieving it and how to overcome common issues.

In brief

  • While the majority of organizations of all sizes use cloud computing, the percentage of assets deployed there remains low: 50% on average, a survey shows.
  • Industry statistics suggest that adopting a cloud native mindset will boost every sector – including financial services – for years to come.
  • Cloud-native tactics seek to maximize computing power and have several benefits, the biggest of which is bringing innovations to market faster with less risk.

Although distributed information processing had been conducted for decades, the mid 2000s witnessed the launch of innovative solutions from several leading suppliers. This is widely considered to represent the birth of the modern cloud computing era. In the ensuing 15 years, a flourishing ecosystem has grown to present customers with a nearly limitless selection of cloud computing options, including public, private, hybrid and multi-vendor offerings.

It’s an understatement to point out that cloud computing has been well-received by organizations of all sizes. For example, a recent survey by Flexera reports that 74% of responding enterprises are spending at least $1.2 million just for public cloud resources. Multi-cloud topologies have also been a hit: 92% of respondents have embraced that strategy to underpin their operations.

Yet despite these statistics, the overall number of assets deployed in the cloud is not keeping pace: the average organization has only migrated 50% of its production workloads. Risk, regulatory, security and data protection requirements all play a part in delaying these desired transformations. Financial services firms are particularly impacted by stringent edicts, extensive oversight and heterogenous environments. Regardless of their industry, many enterprises discover that their dependencies on existing applications and first-generation private cloud implementations constrict their alternatives. This makes it much harder to fully establish a cloud native approach, which would furnish seamless development and operations capabilities across legacy, private and public cloud providers.

This shortfall is unfortunate, since cloud native has the potential to better address the desires of customers and users who now demand always-on, innovative and responsive applications. Financial services organizations are especially vulnerable to competitive pressures from more contemporary, nimbler FinTech outfits that don’t need to support decades of existing, often on-premises technologies. Instead, these younger firms are fully invested in cloud native methodologies that enable them to roll out software updates more quickly (often greater than 100 times a day), rapidly develop new digital services and features, and leverage data through AI and open banking ecosystems.

In this article, we’ll provide a more substantive definition of cloud native, illustrate the singular challenges that thwart financial services firms from attaining it, and outline practical solutions to help you overcome common roadblocks.

1. What is cloud native?

2. Challenges in implementing cloud native

3. What are practical solutions to overcome these barriers?


Chapter 1

What is cloud native?

Cloud native refers to the tactics utilized to build, deploy and run software on cloud stacks.

Simply stated, cloud-native refers to the tactics utilized to build, deploy and run software applications on cloud stacks with an objective of fully harnessing the unique advantages and power of these modern platforms. Traditionally, enterprises have considered their supporting technology infrastructure as fixed and relatively static. Although these systems can be quite reliable and fault-tolerant, they do tend to suffer from excessive costs, diminished flexibility, and architectural rigidity. Adopting a cloud native mindset upends these preconceived notions, and instead expects the organization’s computing resources to be dynamic, scalable, reliable and adept at providing the necessary functionality to keep up with the increasing demands of the business.

Adopting a cloud native mindset upends these preconceived notions, and instead expects the organization’s computing resources to be dynamic, scalable, reliable and adept at providing the necessary functionality to keep up with the increasing demands of the business.

The Cloud Native Computing Foundation (CNCF) is an association of over 500 major organizations working together to boost uptake of this philosophy. According to its official definition, “Cloud native technologies empower organizations to build and run scalable applications in modern, dynamic environments such as public, private, and hybrid clouds. Containers, service meshes, microservices, immutable infrastructure, and declarative APIs exemplify this approach.” As of 2021, CNCF hosts more than 80 projects with over 110,000 contributors from nearly 1,000 organizations representing 177 countries.

These already impressive numbers are accelerating and demonstrate that cloud native principles will influence every industry – including financial services – for years to come. From a demographic perspective, new practitioners are certainly aware of these trends. Consequently, enterprises that champion a cloud native viewpoint will have an edge when attracting talent in today’s competitive labor market.

Establishing a cloud native attitude generally means subscribing to well-established best practices for developing, testing, deploying and maintaining software applications. Each of the following tactics and technologies plays a major role in these efforts.

Tactics and techniques for establishing a cloud native attitude

  • Agile methodologies. This nimbler technique produces software releases frequently, in contrast with earlier arrangements that only delivered major releases once or twice a year.
  • Microservices. This development style breaks up application logic into small reusable components, rather than embedding it into massive, monolithic applications.
  • Containers. These systems – notably Kubernetes (also known as K8) – are designed to automate deployment, scaling and management of cloud native applications.
  • Continuous delivery. These procedures empower software developers and IT services teams to build, test and release software updates as soon as they are available without impacting the end users. This is instrumental in attaining DevOps proficiency.
  • DevOps. Software developers and IT operations are encouraged to collaborate, allowing new code to be built, tested and released quickly and consistently.
  • Cloud platforms. Enterprises are free to position their applications onto the optimal blend of private, hybrid and public cloud environments.

Enterprises that make the effort to champion cloud native practices are rewarded with impressive benefits. First, it brings speed, agility and resilience to their application development and management processes. Additionally, it slashes provisioning time for their IT infrastructure and services, while simplifying operations via increased workforce productivity and enhanced application performance.

Finally – and most importantly – they’re able to bring new innovations to market faster with a lower cost of failure. However, it’s important to recognize that the transformation to a cloud native ethos isn’t simple, and there isn’t a one-size-fits-all recipe. The right strategy depends on different considerations and priorities for each organization, including factoring in external realities.

This is particularly relevant for highly regulated enterprises such as those found in financial services.


Chapter 2

Challenges in implementing cloud native

Wealth and asset management, banking, capital markets, payments and insurance face unique obstacles.

Financial services firms in particular – including wealth and asset management, banking, capital markets, payments and insurance – confront a unique set of obstacles on their journey to cloud-native. The most obvious is the array of regulations and frameworks that these companies must comply with. A subset of this list includes the following.

A few regulations and frameworks financial services firms face

  • FedRAMP
  • PCI-DSS 
  • FIPS 140-2
  • EU Data Protection Directive
  • GDPR
  • NIST 800-171
  • Reg SCI
  • SEC Rule 17-a-4(f)

Fortunately, many public cloud providers supply foundational services that already fulfill these requirements. However, it’s ultimately the responsibility of the financial services firm to properly configure and deploy applications that meet the higher-level mandates of these regulations.

Beyond externally imposed dictates, financial services companies are typically burdened by many backlogged tasks and assets – commonly labeled as technical debt – within both their application and organizational domains. For example, a bank may rely on a mainframe located in its facilities that is incapable of connecting to the cloud. In other cases, a firm’s application portfolio may largely be monolithic and unable to benefit from all that the cloud offers.

Some organizations may need to follow manual risk and governance processes that challenge, or event prohibit, cloud native deployment frequency. Additional challenges include third-party supplier and concentration risks, data security, data residency, cultural change and finding compelling business cases to support change.


Chapter 3

What are practical solutions to overcome these barriers?

Cloud service providers are beginning to offer certified, fit-for-service industry clouds.

While the predicaments we just itemized may appear daunting, the rewards that you’ll realize from cloud native are substantial and well worth the exertion. Thankfully, there are several steps you can take to bypass these impediments. From the regulatory perspective, cloud service providers are beginning to offer certified, fit-for-service industry clouds containing pre-baked infrastructure and application solutions specifically tailored for financial services.

On a more elementary level, you can now utilize hybrid hardware security modules to bring your own encryption keys to the cloud, configure dedicated instances to resolve shared tenancy concerns and install hardware supplied by cloud vendors to extend their offerings into your on-premises data center. This can help diminish data latency as well as facilitate more scenarios to apply edge computing.

Surmounting these initial hurdles and embarking on the cloud native path can create a positive feedback loop that leads to further advances. Here are just three instances of how such a cycle could be created.

Examples of how a cloud native path becomes a cycle

  1. Containerizing your applications allows for standardization across environments, which could reduce security issues.
  2. Containers also unlock portability and make it easy to migrate workloads at will, thereby reducing third-party dependencies and risk.
  3. Using immutable infrastructure lets you decouple your information from your application and keep it in a centralized data store.

Unsurprisingly, each of the above examples can also help address regulatory concerns.

How do financial services start on cloud native?

Successfully making the transition to cloud native first involves carefully analyzing and understanding your entire stack, including development, testing, deployment, monitoring and operationalization. Once you’ve amassed that inventory, it’s worth considering the proven GitOps pattern as a next step.

This is a standardized deployment workflow that attempts to maintain a single source of truth – commonly known as “declarative state” – for infrastructure and application code. Changing the configuration of your environment is protected via secure procedures. This allows for a higher frequency of direct on-demand deployments to production. You may also wish to evaluate automated control monitoring of configurations or static code scanning baked into the workflows themselves.

On the monitoring and operationalization front, it’s wise to understand the requirements of your new cloud native stack and confirm that your team will be supported by the right tooling. This includes alerting capabilities; the Elasticsearch, Logstash and Kibana (ELK) stack; and microservices traceability.

No matter what shape your unique cloud native architecture takes, a culture that welcomes multiple constituencies – such as technology, compliance, security and risk – and then treats them as valued partners who agree and buy into this new ideology is one of the best guarantees of success.

Securely breaking down silos establishes the groundwork that will make it far easier to rapidly deliver the features that benefit your customers, making your company a more formidable competitor in the financial services industry.


Surmounting the initial hurdles and embarking on the cloud native path can create a positive feedback loop that leads to further advances.

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