Cloud Adoption Rapidly Gaining Speed in Financial Services

"As long as I don't have to install it, manage it, run it, support it or troubleshoot it, I'm happy," said an IT executive and attendee at the Bloomberg Link Enterprise Technology Summit.

The attendee who is partially responsible for data management infrastructure at a New York-based investment bank asked to remain anonymous, since he isn't authorized to speak to the press. His sentiments, however, were echoed throughout last week's day-long Bloomberg Link Enterprise Technology Summit that featured speakers from Blackstone, Freddie Mac, RBS, Google, Deutsche Bank, Direct Edge, Lightspeed Financial, PDQ ATS, Bloomberg and more.

"Unless you are a company that has a hundred thousand square feet of white space in a computer room, you can outsource it all to someone else," said Tom Secunda, Founding Partner, Vice Chairman & Global Head of Financial Products & Services, Bloomberg LP, in his opening remarks at the conference. "If you are a small [firm], or medium, wow, what a level of service you can get. And because the outsourcers do this across many customers, you can get the services much cheaper than you can do by yourself."

The growth of IaaS (Infrastructure as a Service) and, of course SaaS (Software as a Service), has gained so much traction in recent years because of the sluggish economy and shifting business models in the financial services space. "In the finance industry, people are really starting to worry about costs and being efficient," said Secunda. "In today's world, efficiency is outweighing growth."

The cloud has gained so much momentum partially because of the way it has permeated the lives of consumers and many financial services employees. As any CIO can attest, employees are utilizing technology in their personal lives and are asking for similar functionality in the corporate world. Traditionally, an enterprise technology organization would build its own technology from scratch to answer the employee's needs. But today, that is too expensive and it takes too long. "The unique economics created by consumer-oriented technology companies have created a price differential that the existing [enterprise technology] competitors can't live with," said Ben Fried, Chief Information Officer, Google. "The ship has sailed when it comes to cloud's tipping point. For instance, 48% of Fortune 500 have a paid Google technology in use."

[For more on how financial services organizations and technology providers are moving to cloud-based technology, read: Financial Services Specific Cloud Offerings Continue to Increase.]

As CIOs in the financial services space face tighter budgets, more are open to shifting applications and technology to cloud providers. "The acceptance of CIOs to have more of their product delivered as a service," is growing, said Kirk Materne, Managing Director, Equity Research at Evercore Partners. "More CIOs are saying that if a product isn't a differentiator, make it a service."

Companies that can't make the shift to a new model risk losing support of the business and employees, said Peter Levine, general partner at Andreessen Horowitz, during a session at the Bloomberg Link Enterprise Technology Summit. "The losers will be the companies that can't move across the [cloud] chasm," he says. "It is clear that people understand SaaS and like it. Companies will need to embrace these new business models. Some SaaS models are being sold directly to business units, without involving the CIO."

When business units start to make software purchases without involving the CIO IT is usually because the IT organization is too slow or resists change. Many CIOs rush to squash "shadow IT" projects, citing increased risk or regulatory concerns, which are often true in financial services. At the same time, however, there is a reason why business units are turning away from IT. "I look at shadow IT as a reflection that IT is dong something wrong," said Robert Lux, SVP and Chief Information Officer, Freddie Mac during the conference. "If the business has to go to find their own IT, we aren't providing what the business needs."

No More "Building"

Capital markets organizations have almost completely changed their view of building and running versus buying and hosting. Even just a few years ago, many firm's lists of applications that needed to be run in house were a mile long. These apps gave the bank a "competitive advantage" in the marketplace.

Today, the list is shorter, and getting shorter by the day, according to Philippe Carre, head of connectivity for SunGard's global capital markets business. "Banks used to have an obsession with owning everything, but now they don't want to run," Carre said in an interview with Wall Street & Technology. "Today almost 99% of discussions with banks focus on how to have more apps hosted for them." Carre's experience revolves around providing financial institutions with hosted software. Carre joined SunGard with the acquisition of GL Trade in January 2009. In SunGard's capital markets business, Carre has responsibility for the delivery of hosted services and solutions to trading clients globally.

Other technology providers are also fielding more questions and requests from banks about what can be hosted by a partner, rather than in a bank's own data center. At Pershing LLC, the BNY Mellon company that provides solutions to financial services organizations, clients are "asking a lot of questions about cloud and what they can do in the cloud," says Ram Nagappan, co-CIO and managing director. Pershing has run its applications on a single architecture for years and all of its 1,500 clients essentially access the applications on a private hybrid-cloud that runs in Pershing's data centers, Nagappan reports.

With more clients asking about cloud and how they can use it, Nagappan says Pershing is always looking for new ways to provide services to clients in the cloud. For instance, Pershing's NetX360, a technology platform for investment professionals, essentially runs on a private cloud. Pershing will continue to enhance NetX360, as well as offer new products and services that are hosted by Pershing. Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio