Top 5 Cloud Trends to Watch in Financial Services for 2023
2022 was another huge year for cloud adoption within financial services - and 2023 is expected to be no different. With that, however, a range of new challenges will bubble up and we expect to see a wave of industry- and government-led initiatives that will further fuel cloud adoption.
If the last few years are anything to go by, then we can expect more surprises this year. If you’re a financial institution or work closely with the sector, here’s my top five trends to watch out for, that will shape the financial services industry throughout 2023.
Top 5 cloud trends to watch in banking & financial services for 2023
1. Compliance as code
2. Explainable AI
3. Citizen developers
4. Green finance
5. Industry cloud
1. Compliance as Code
Regulation and compliance are the biggest barriers to digital transformation within financial services, according to a study by IBM. While there is an industry push to increase agility to meet changing market expectations and to innovate, this brings a higher risk of technical misconfiguration of cloud resources.
This is because the cloud resources are undergoing continuous development and iteration, yet compliance is typically only verified periodically. This leads to a potential misstep between the two – leaving room for drift and non-compliance between audits.
A raft of new regulations and reforms throughout Europe in 2023, including DORA, will put compliance of cloud infrastructure into sharper focus for financial services firms.
Compliance as code will play an increasing role in addressing the misstep issue - continuously monitoring cloud infrastructure for violations. It’s a programmatic approach that turns human-readable policies into automated, machine-readable processes.
Ultimately, it includes a suite of tools and practices that allow risk and compliance stakeholders to specify how cloud resources are configured, reassuring them that compliance controls are met.
Read also How to tackle financial services compliance in cloud?
Compliance as code will play an increasing role in addressing the misstep issue. It’s a programmatic approach that turns human-readable policies into automated, machine-readable processes.
2. Explainable AI
Financial services firms are at the leading edge of AI usage compared to other industries. 54 percent of financial services firms deployed or accelerated their usage of AI during 2022 and this will continue to increase throughout 2023.
AI is being used for a whole range of use cases across the entire industry from predicting customer churn and extracting data from documents to KYC identification and loan default prediction. The list is long - and growing.
As the usage of AI technologies increases across a wider range of use cases, so does the accuracy of the models. However - and this is important - so does the complexity of the models behind them, like deep neural networks.
These so-called black box models can be too complicated even for expert users to fully understand. In 2023, we'll see an increase in upskilling initiatives to tackle this black box issue and bridge this gap in understanding.
We'll also see a further rise in cloud-native explainable AI - a set of processes, tools and dashboards that help internal stakeholders, customers and regulators understand and trust the outputs of machine learning algorithms.
Explainable AI is about understanding the data used to train the model, and the features and weights used for decisioning and prediction. We’ll even have AI interpreting the processes of AI to humans.
And, throughout 2023, we’ll also see financial services firms start to establish AI risk management frameworks and form AI governance committees charged specifically with monitoring the risk and fairness of AI decisioning.
We'll see a further rise in explainable AI - processes, tools and dashboards that help internal stakeholders, customers and regulators understand and trust the outputs of machine learning.
3. Citizen Developers
You may not believe this but finance is seen as boring to many outside of the industry. As a result, many financial services firms find it hard to recruit the tech talent they need to improve their customer experiences and make their internal processes faster and more efficient. It presents yet another barrier to their digital transformation efforts.
Throughout 2023, we’ll see more businesses turn to low-code/no-code development to accelerate their digital transformation initiatives. This means we'll see more non-technical enthusiasts getting involved in less complex technology projects, like process/workflow automation and rapid application development.
More financial services firms will start to trial and roll out cloud-based low-code and no-code citizen developer programmes.
This means that the role of tech teams will change. Tech teams will need to facilitate citizen developer programmes and provide the technical guardrails needed to reduce risk.
On the plus side, business users with a deep understanding of business and customer problems are often best placed to define the solutions - but now they’ll have the tools to fix them themselves.
Business users with deep understanding of business and customer problems are often best placed to define the solutions - now they’ll have the tools to fix them themselves.
4. Green Finance
When ESG issues typically come up on top trends articles like this, it's often more out of tokenism than a real sense of impending change. But be sure that the energy crisis will push ESG further up the strategic agenda.
Further pressure from customers and investors as well as new government incentives will drive innovation. Nicolai Tangen, chief executive of the $1.3tn Norwegian oil fund which owns on average 1.5 percent of every listed company, announced recently the fund’s plans to become a more vocal investor and vote against companies that fail to set a net zero emissions target.
Efforts like this can have a material impact to the extent that, in 2023, green finance can finally become mainstream.
Green finance propositions have been hanging around on the fringes of the industry for some time. Cloud-native emerging technology will finally unlock green finance with a range of new propositions entering the market. These include green mortgages, energy efficiency loans, financing for electric vehicles, low-carbon farming, solar panels and other green products that follow ESG standards.
Cloud-native emerging technology will finally unlock green finance with a range of new propositions entering the market - green mortgages, energy efficiency loans, financing for electric vehicles, low-carbon farming, solar panels.
5. Industry cloud
Yesterday, the focus was on just getting to the cloud and establishing a footprint in the cloud by migrating some non-critical workloads.
Today, most enterprises have only 20 percent of their workloads migrated to the public cloud, but with less of an emphasis on industry-specific or industry-compliant features.
Looking ahead, financial services firms will move more of their critical workloads to industry-specific cloud platforms to take advantage of new features and services designed for them.
While industry clouds aren’t particularly new, recent developments make it easier for financial services firms to increase their cloud adoption. IBM for instance offers an industry-specific platform that automates security and compliance posture.
The three main public cloud providers each have their own industry cloud offerings. AWS offers a range of services across banking, payments, capital markets and insurance. For example, Amazon FinSpace is specifically designed to manage and analyse financial data in accordance with compliance requirements.
Microsoft has Microsoft Cloud for Financial Services which includes capabilities to manage financial services data and gives a unified customer view to increase customer lifetime value and loyalty.
Google Cloud’s API management platform allows retail banks to utilise Open Banking for customer management and regulatory reporting.
All these cloud providers have partner ecosystems that allow financial services firms to access relevant software and services.
Financial services firms will move more of their critical workloads to industry-specific cloud platforms to take advantage of new features and services designed for them.
In summary, the digitisation of financial services will roll on into 2023. This will continue to help financial services firms reduce costs while increasing revenue and internal efficiencies.
Industry cloud will give financial services firms better access to cloud-native technologies enabling them to reach underserved segments of the market, with new propositions like green finance. What’s more, other trends such as compliance-as-code, explainable AI and citizen developers will have a much-needed humanising effect on cloud technology adoption.
Should this happen, financial services and the technology underpinning them will become more accessible and more useful to more people.
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