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How cloud computing is a game changer for financial services in MENA

Suruj Dutta

EY MENA Payments and Financial Services Digital Leader

The new-age tech world, that is taking shape around us, thrives on emerging technologies, constantly focusing on digitalizing every aspect of a business operation.

In brief

  • More than three-fourths (83%) of financial services companies reported that they have already implemented some of their services in a cloud.
  • As per the survey, the top five key factorsthat drive financial institutions toward cloud adoption are marketplace integration, digital transformation and integration, security, IT complexity and end of system life cycle security, and analytics.
  • Financial services companies prefer to use private and hybrid cloud architecture over the public cloud.

The outbreak of the COVID-19 pandemic has been a tipping point for digital transformation. It has shown that businesses, from banks to start-ups, large corporates to small and medium enterprises (SMEs), even governments and world economies, need to acclimatize their ways of working and be ready for unpredictable circumstances.

Undoubtedly, cloud computing has been an important enabler, facilitating and accelerating this transformation. It has become a vehicle for next-generation businesses of all sizes across industries, to provide agile, scalable and innovative solutions. Cloud is a disruptive technology that has established its permanent primacy in the IT environment, helping reshape, rebuild and reignite businesses. It is considered to be the next paradigm shift in computing technology after the internet in the 1990s and smartphones in the 2000s.

From retail and transportation to food services and media, the cloud is causing disruption everywhere and will remain a key enabler of further innovation. Everyday activities such as online shopping, hailing a cab, listening to music, ordering food, banking services and payment, streaming videos and storing photos and files are some activities “processed in the cloud.”

Cloud implementation
of companies have already implemented some of their services in a cloud setup.

Our survey unveils that more than three-fourths (83%) of companies have already implemented some of their services in a cloud setup.

Core business (retail and corporate), IT — development, testing, project management services, treasury and dealing, compliance, and operation services were among the top organization areas or workload cited by the respondents that have already been migrated (or plan to migrate) to the cloud. Furthermore, when asked about the organization’s stage on its journey to cloud adoption, it was found that more than half of the respondents (67%) were at the “discovery” and “assessment” stage (combined), while only 8% of the respondents marked “no appetite,” suggesting total cloud usage of around 90% in the industry.

The choices that Financial Institutions (FIs) make should be dictated by the organization’s strategic objectives and the challenges it faces. Having a well-defined cloud strategy synced with the business’ long-term objectives, and a robust IT infrastructure that enables flexibility, interoperability and scalability, is key to the success of the organization and must be the first step in an organization’s cloud transformation journey.

Our survey indicates that marketplace integration is the top reason or driver for cloud adoption, followed by IT complexity and end-of-system life cycle security, analytics, security, and digital transformation or innovations. Managing business resilience (90%) and competitive advantage (82%) were also featured among the drivers of cloud adoption. Respondents reported that the cloud provides them with a competitive edge and delivers new capabilities that boost profits and growth, rather than merely reducing costs.

Benefits of cloud adoption for FIs

  

How EY can Help

1. Capex optimization

 

The cloud helps to reduce fixed IT costs required for hardware devices and allows companies to easily expand their business operations. The pay-as-you-go model provides improved flexibility and eliminates the need for significant up-front capex, particularly those associated with delivering new solutions, as well as overall operating charges, enabling a shift from it being a capex to an operational expense.

 

Our survey reveals that in the next two years, the cloud, on average, will enable an annual cost-saving of US$21.14m related to capex. This is further expected to rise to US$45.43m in the next five years. These savings allow businesses to reinvest in other parts of the business and accelerate growth.

 

2. Scalability

 

Gradually, cost has become a less important factor as the cloud’s other business benefits have emerged. These include infinite scalability, lower barriers to experiment, improved customer retention, security and business resiliency. Adopting cloud solutions allow financial services companies to be right-sized, i.e., scale up or down on demand, with cloud services being able to expand and contract as needed almost immediately. This provides a much better way to manage costs in line with user and business demands.

 

3. Speed to market

 

The cloud enables developers to adopt a fail-fast approach to build and test new products and applications, and bring them to the market quickly. Conducting analytics in the cloud is also one of the emerging driving factors, since it enhances business intelligence, strategic planning and targeted marketing. The financial services companies that were surveyed reported that technologies such as artificial intelligence (AI) and/or machine learning (ML) (30%), data (20%) and advanced analytics (20%), distributed ledger (15%) and blockchain (10%) would also enable their move to the cloud in the next 12 months.

 

Although multiple benefits are associated with cloud-first strategies, several financial services companies are hesitant to move all their IT and business systems to the cloud. The risks and challenges to cloud adoption vary — from data security concerns to lack of IT systems and related change management components as well as lack of expertise and skilled resources.

 

To address these concerns and challenges, it is imperative for financial services enterprises to assess their existing IT landscape and build security models that are appropriate for the architecture being implemented.

Existing IT landscape assessment
of the respondents had assessed their current IT landscape before cloud-first strategies

Our survey indicated that 82% of the respondents had assessed their current IT landscape before cloud-first strategies while 91% of the respondents acknowledged the fact that they have reviewed or assessed the risks or concerns that they may encounter during their cloud-first strategies or implementation of cloud solutions.

Organizations that were surveyed reported that strict security and compliance regulations are top of mind for everyone in the MENA region, from C-suite IT executives and senior leaders to IT managers and developers. This is followed by a lack of expertise and skilled resources, and reduced interoperability with regulators or government entities. Cost or lack of local vendor solutions and lack of IT system and related change in management components are relatively minor concerns.

Many of the organizations’ CTOs and CIOs expressed that for a successful cloud implementation journey, they require extensive support on regulatory compliance and governance concerns, cost assessment, and training for IT developers and support staff.

Leaders of FIs must rethink how the cloud transformation will impact their business, customers, supply chains and employees. A thorough risk assessment is imperative, which will enable FIs to fully leverage cloud capabilities. Transformation challenges can be overcome by adopting a nuanced and focused strategic approach.

The way forward

  

Based on our survey, we have recommended key priority areas for the financial services institutions that will help them stay agile and prepare for the future.

  • Focus cloud investments on updating and modernizing the IT infrastructure.
    • Leverage hybrid cloud strategies to maintain and support their legacy systems while simultaneously taking advantage of the multi-cloud model to gain efficiencies, resilience and agility.
    • Integrate cloud strategies with the business model, and ensure that cloud is fully software-defined, automated and abstracted.
    • Invest and take the necessary steps to manage cloud environments, including the security and compliance of cloud services.
    • Plan, implement and maintain comprehensive risk management, security, privacy and compliance program.
  • Change business operating model.
    • Meet customer expectations in a digital-first world. Reach customers via new digital distribution channels and deliver innovative business offerings across the financial spectrum. Integrate with open banking platforms, application programming interfaces (APIs), AI and/or ML and other technologies to transform the customer experience.
    • Create a financial services product ecosystem. Develop cloud-native applications and services that expand digital opportunities and market outreach.
    • Turn data into actionable insights quickly and cost effectively. Exchange and monetize financial and real time market datasets, securely, easily and at scale.
    • Build engineering skills and culture. Drive cloud skillsets across development teams

Summary

FIs are increasingly turning to the cloud not only to optimize their capex and scalability but also to unlock new avenues of growth. They are leveraging cloud technology for digital transformation, creating new customer journeys through innovative offerings, driving business agility and resilience. However, it is a prerequisite for FIs to have a risk assessment strategy in place before transitioning to cloud.

About this article

Suruj Dutta
EY MENA Payments and Financial Services Digital Leader
Driving financial services innovation to empower communities and businesses. Digital enthusiast and keen public policy observer. Raising a daughter in an uncertain world.
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