Cloud adoption in the financial services sector has significantly increased, with 91% of banks and insurance companies initiating their cloud journey, according to a new report by Capgemini Research Institute. This marks a substantial rise from 2020, when only 37% of firms had embarked on their cloud transformations. Despite this high rate of adoption, the report reveals that many organizations are still unable to fully realize the business value of cloud adoption. More than 50% of surveyed firms have only migrated a small portion of their core business applications to the cloud.
The report emphasizes the importance of implementing cloud at scale to unlock the full value of investments in artificial intelligence (AI). Currently, 62% of financial services firms are using AI, but its impact remains limited due to the lack of widespread adoption. Cloud investments have predominantly focused on customer-facing applications, while investments in back-end core processing systems have been relatively low, resulting in a poor overall user experience.
To fully leverage the benefits of AI, the report highlights the need to migrate internal core systems to cloud-enabled ecosystems and platforms. This will enable organizations to harness the complete potential and efficiency of AI and generative AI technologies. By doing so, financial services firms can expect to see a wider range of business growth opportunities emerge in the coming years. Companies in the sector are already testing generative AI use cases in areas such as customer onboarding, credit analysis, financial planning, policy renewals, and client servicing models.
Cloud adoption also plays a pivotal role in driving environmental, social, and governance (ESG) impact within the industry. With 95% of firms now considering ESG impact in their investment decisions, the cloud can facilitate effective ESG management and reporting to help achieve sustainability goals. Cloud providers are developing solutions that enable comprehensive tracking and reporting of emissions across businesses, offering improved transparency and reporting measures.
While cloud adoption brings significant advantages, the report identifies several challenges hindering effective adoption at scale. Data security is a key concern for 68% of industry executives, while 51% cite high operational and transformation costs as potential obstacles. Regulations, such as data sovereignty, are also seen as potential challenges by 45% of respondents.
The survey highlights risk management and customer relationship management (CRM) as the top priorities for cloud migration in the financial services sector. In wealth management, organizations are leveraging cloud-enabled fraud detection techniques to make data-driven risk management decisions. Retail banks are focusing on transitioning complex credit risk management to the cloud to shorten loan processing decision time. Additionally, insurers are exploring data-driven personalized value-added services to align with evolving customer preferences, with CRM standing out as a high priority for the life insurance sector.
In conclusion, the report underscores the importance of cloud adoption in the financial services industry. It emphasizes the need for organizations to move beyond a cost-saving approach and prioritize innovation to gain a competitive edge. By establishing an effective cloud target operating model at scale, financial services firms can harness the full potential of transformative technologies like AI.
