Cloud migration demands risk integration and rigorous testing
In this volatile economic environment, financial institutions need to be aware of the risks and challenges associated with cloud integration, the benefits of adoption and preparedness before undergoing their own transformation. Emma Taylor, Senior Analyst, Thematic Intelligence, GlobalData reports.
Cloud computing has become a key technology enabler for accounting firms. Cloud infrastructure can be used to store data and applications and provide remote access to the same systems. Furthermore, cloud computing provides firms with a more flexible business model and lowers operational costs. Usage-based billing, business continuity, and business agility are some of the other benefits cloud offers compared to implementing ICT solutions on-premises.
A GlobalData report explains that although cloud adoption has significant benefits, some key considerations must be factored in during migration or adoption. Not advancing cautiously and failing to adopt cloud services in a resourceful and efficient manner could considerably harm financial institutions. For example, in 2018, TSB Bank left its customers unable to access their banking services and allowed some customers to see the details of other transactions due to a botched cloud migration. The aftermath of this cost the bank almost GBP200 million ($236 million) on top of the statutory loss of GBP107.4 million ($130 million). After an independent review in December 2022, the bank was fined a further GBP48.6 million ($60 million) as the review concluded that TSB had insufficient oversight of its suppliers.
Cloud growth has reportedly slowed across sectors as cloud projects have been deprioritised due to the poor economic climate, rising costs, and skill shortages. This is unsurprising due to the high costs and risks involved in cloud migration. Many of the benefits of cloud adoption can’t be seen immediately as new revenue opportunities or efficiencies only benefit enterprises in the long term. This means that even if cloud infrastructure could provide vast improvements to processes, an expensive cloud migration can seem unappealing for enterprises, especially if the existing infrastructure works satisfactorily.
Some key considerations for banks before and during cloud adoption
Key considerations during cloud migration include governance, cybersecurity, vendor lock-in, maintaining interoperability, compliance, and resilience. This is especially true when using third-party providers offering pre-built solutions. Risk integration and rigorous testing must be at the core of cloud migration plan development to ensure that enterprise risk and performance standards are upheld. This has led to the development of cloud migration advisory frameworks like IBM’s Cloud Framework for Financial Services.
It is important to focus on the value that could be delivered to end users without getting side-tracked by discussions of the different technologies that could potentially be used. Many financial institutions have reported that it is essential to focus on the original outcome of the cloud migration and ensure it does not become a cost-cutting exercise. There may be cost-saving opportunities after a few years when companies can close their old applications. However, this should not be the main driver for transformation.
Another key challenge during cloud adoption in financial services is compliance. Many cloud transformation projects have been slowed down, paused, or even terminated due to compliance issues. Compliance needs to be considered at the beginning of the project, considering risk analysis, mitigation actions, and a tried-and-tested exit strategy.
A siloed approach to financial IT management is outdated and unsuitable. Different approaches to choosing infrastructure include multi-cloud, public cloud, hybrid cloud, and private cloud. Deciding on which to use means compromising between system control and customisation and scalability, leading to the rule of thumb: deploy on private and scale on public. Some banks use a hybrid approach, including on-premise, private, and public clouds. This offers control, flexibility, and easy scaling but comes at a price, as on-premise hardware must still be maintained.
A key consideration for organisations is how to manage internally during cloud transformation, as it requires new working methods. This means the existing siloed way of working must be dismantled and reorganised. Teams should comprise every person in the journey, including developers, business users, and all stakeholders. This involves gathering a team across the organisation with the sole purpose of developing a compliant onboarding package, including assets, methods, tools, and ways of working that can be reused for new workloads. This will reduce time to market significantly and increase return on investment.
Finally, once a cloud migration is finished, retiring the old assets is essential. It is important to conduct proper testing and monitoring before decommissioning retired assets to ensure that no functionalities or dependencies are mistakenly left to cause systems failures when they are retired. However, it is important not to keep both running. Retiring the old asset can also have benefits like helping to reduce operational costs.
Senior Analyst in GlobalData's Thematic Intelligence Team specialising in disruptive technologies.
Tangled web of legacy systems
It’s unsurprising that these SMEs are turning to their accountants for strategic help. Unlike a huge company that can afford to get a big four consultant in to fix their issues, the accountants and bookkeepers and payroll teams that help these SMEs do the basics well are often the main source of outside advice an SME can access.
Luckily these professionals are often the best-placed people to offer that strategic advice.
As an accountant or bookkeeper, it is absolutely essential that you make time to have these strategic chats with your clients.
If your service is extremely no-frills - even if it is very well run - there is always a chance that your client will find someone who can do that service cheaper, or attempt to build that capacity in-house. We all know SME accounts and pay runs are not “simple” commodity services, but some clients unfortunately may see things that way. In our survey a fifth of professional service firms had actually lost business in the last year to clients who were coping with “economic hardship”.
Add strategic advice into your package and you become invaluable. It doesn’t have to be hours and hours every week but your outside/inside perspective can be extremely valuable for SMEs - you know their books, but are outside enough to make clear-sighted calls that might be harder for someone enmeshed in the business.
Finding the time for this will always be a challenge. Even a quarterly strategy session, spread across many clients, can soon eat up a lot of your diary.
But you will have a lot more time for it if your software is doing its job well. Well-built cloud software will always be up to date with the latest legislation, meaning you are not manually going through anything to make sure pay runs are compliant, or wasting hours waiting for updates.
Similarly, automation can obliterate a lot of repetitive and time-consuming tasks. If you find yourself doing any work you think you could train a smart 14-year-old to do, consider whether you should instead get a computer to do it for you. This doesn’t mean automating yourself out of a job or just handing hugely important things like payroll over to a computer you never check - but there is probably some aspect of your job that could be made far efficient with automation. Have a look at the current crop of software on offer and make sure whatever you have is giving you time back, not taking it away. The shift to a new product can be painful in the short-term, but it is worth it in the long run.