In the South African context, financial services companies have been slow in adoption of cloud services however, the last year or two has seen a significant shift in this mindset, with all South African banks steadily moving their infrastructure to the cloud.
It is all about reducing costs and increasing efficiency, as well as improving business agility and enhancing customer experience, as financial services companies have been struggling to keep up with the rapid advance of technology across the industry, while at the same time seeing FinTech organisations eating into their business.
Globally, most banks have either completed or are currently undertaking a digital transformation journey, driven mainly by changing customer expectations and the need to do things differently. This is where cloud technology is imperative for banks, which need to manage large amounts of data.
All the traditional banks in South Africa currently have strategies to move to the cloud, with a few choosing to follow the public cloud route, while the majority are adopting a hybrid cloud strategy. However, each approach brings with it its own challenges and benefits.
The hybrid cloud approach allows banks to move some of their applications to the cloud, while keeping control of the core of their data, which is important in terms of security and data sovereignty. This strategy increases the cost of migration and requires a longer timeframe – at one- or two-year journey.
This is because of the amount of work that needs to be done, as well as the need to acquire skills to manage data in a hybrid cloud environment. Cloud technology skills are evolving in South Africa, however, finding skills coupled with the requisite experience can still be challenging.
On the other hand, the challenge of adopting a pubic cloud strategy means that a bank runs the risk of cloud service provider lock-in. Banks do understand that they don’t want to be locked into one vendor, so most of them are looking at a multi-cloud approach and need to talk to various partners to develop an effective migration strategy that will facilitate the integration of various solutions.
A major factor that has slowed the adoption of cloud services among financial services companies has been the big concern around security risks. So, while public cloud is the end-game, most banks are adopting a hybrid cloud strategy for now in order to mitigate security risks.
However, it must be noted that – for the large part – the perception around security risks has been greater that the actual risks themselves. And at the end of the day, it’s all about mitigating risks and accepting that security breaches happen.
It comes down to organisations knowing what security protocols are in place and how their data is being protected. In most cases, they should rely on third party security solutions providers to develop an effective strategy.
Compliance with how data must be stored and handled has also had an influence on the pace of cloud services adoption within the financial services sector. However, the global bodies, as well as the South African Reserve Bank, have recently shifted their position in terms of cloud technology, acknowledging that this is the way forward. It is expected that clarity around compliance for South African companies will come from the Reserve Bank in the near future.
Naturally, there are costs associated with migration to the cloud and these can initially be greater when adopting a hybrid cloud approach, as it involves running two sets of technology, which produces parallel costs. However, in the long run, adopting a hybrid cloud strategy does provide great cost efficiency and increased business agility.
Also, there are greater costs involved if an organisation wants to migrate its legacy systems to the cloud. These are often disparate systems that need to be rehosted and re-platformed so that they can be cloud-ready.
In terms of actual migration, teaming up with an IT partner is definitely the way to go. Banks cannot do this by themselves. A partner will be able to provide the skills, cost model and tools that will ultimately reduce the costs of migration. Furthermore, an experienced partner can also provide the required compliance standards and processes for moving to the cloud.
Lastly, banks must keep in mind that the culture and mindset of an organisation is a very important element in cloud adoption. The leadership of an organisation must make sure that there is buy-in from the business team for successful migration, as it comes with lot of changes that will impact organisational culture.