Cloud Adoption Growing Rapidly Among Banks and Insurers but Falling Short of Full Potential
A recent report by the Capgemini Research Institute highlights the increasing adoption of cloud technology among banks and insurance companies. According to the report, 91% of financial institutions have embarked on their cloud journey, a significant increase from the 37% recorded in 2020. However, despite the high rate of adoption and corresponding investment, many firms are still struggling to fully realize the business value of the cloud.
The report reveals that over 50% of the surveyed firms have only migrated a minimal portion of their core business applications to the cloud. This limited adoption hinders the scalability and flexibility advantages of cloud-based systems, as most companies still opt for a lift and shift approach rather than fully embracing cloud-native solutions.
While financial services executives recognize the importance of a cloud-enabled platform for agility, flexibility, innovation, and productivity, the majority of firms have not fully embraced cloud-native technology. Instead, they focus on investing in modern, customer-facing applications driven by artificial intelligence (AI), neglecting the back-end processing systems that provide inputs to these applications. As a result, there is a limited overall user experience and a lack of impact from AI technologies.
The report highlights that scaling up cloud adoption is crucial to unlock the full potential of AI investments. Currently, only 62% of financial institutions have started using AI, with the aim of utilizing it across their entire value chain in the next two years. However, to fully leverage the benefits of AI and generative AI technologies, it is essential to migrate core systems to cloud-enabled ecosystems and platforms.
Cloud technology also plays a pivotal role in addressing environmental, social, and governance (ESG) challenges faced by the industry. With 95% of firms factoring ESG impact into their investment decisions, the cloud can aid in effective ESG reporting and help achieve sustainability goals. Cloud solutions provide essential tools for measuring and reporting ESG impact, offering improved transparency and reporting measures.
The report also highlights the migration priorities for cloud adoption in the financial services industry. Risk management and customer relationship management (CRM) are among the top areas ripe for early cloud adoption. Wealth management firms see the benefits of cloud-enabled fraud detection techniques for data-driven risk management decisions. Retail banks emphasize transitioning complex credit risk management to the cloud for faster loan processing decisions through automation and integrated analytics. Life insurance companies prioritize cloud adoption for customer relationship management to align with evolving customer preferences.
Despite the advantages of cloud adoption, the report acknowledges challenges associated with data security, operational costs, and regulations. Data security remains a barrier for 68% of executives, while high operational and transformation costs are a concern for 51%. Additionally, regulations such as data sovereignty pose challenges for 45% of financial institutions.
In conclusion, the report emphasizes the importance of moving beyond a cost-saving approach and driving innovation through cloud adoption in the financial services industry. By establishing an effective cloud target operating model at scale, financial institutions can fully harness the potential of AI and generative AI technologies. Cloud technology also plays a crucial role in addressing ESG challenges and improving risk management and customer relationships. Despite the challenges, the increasing adoption of cloud technology among banks and insurers signifies a positive shift towards a more agile and digitally empowered industry.
