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GOOGLE CLOUD STUDY: CLOUD ADOPTION INCREASING IN FINANCIAL SERVICES, BUT MORE GUIDANCE NEEDED FROM REGULATORS

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By Zac Maufe, managing director, Google Cloud, Financial Services

 

The financial services industry is evolving at a rapid pace, with shifting consumer expectations, new technologies, and developing regulatory requirements. Financial services firms need the right technology to help them stay agile and prepare for the future.

The cloud is a key point of leverage for firms looking to improve performance across a broad range of activities. Moving to the public cloud can advance operational resiliency, improve staff productivity, increase regulatory compliance and enhance business model innovation.

However, there are a number of financial services companies that are still hesitant in their cloud journeys. The barriers to adoption vary, from the complexity of legacy systems, to trust and skills gaps, regulatory uncertainty, and fragmentation of compliance requirements. Although many companies have embraced the benefits of cloud technology, more robust cloud adoption—especially around core back-office functions—will require additional facilitation, including through regulatory harmonization and streamlining.

 

A new comprehensive study on cloud adoption in financial services

To better understand the challenges and opportunities of cloud adoption in financial services, Google Cloud commissioned Harris Poll to survey more than 1,300 leaders from the financial services industry across the United States, CanadaFranceGermanyUnited Kingdom, Hong KongJapanSingapore and Australia.

 

There were five noteworthy takeaways from the study:

  1. A vast majority of financial services companies are already using some form of public cloud. A large number of surveyed financial services companies (83%) report they are deploying cloud technology as part of their primary computing infrastructures. Of those using cloud technology, the most popular architecture of choice is hybrid cloud (38%), followed by single cloud (28%), and multicloud (17%). Notably, of respondents without a multicloud deployment, 88% reported they are considering adopting a multicloud strategy in the next 12 months.
  2. Financial services institutions in North America are leading in cloud adoption. Of the financial services companies who are implementing a cloud strategy, the highest levels of cloud workload adoption were reported in North America, with institutions in the U.S. (54%) and Canada (52%) leading the way. The lowest level of cloud adoption was reported in Japan (42%).
  3. As financial services companies continue to use the cloud, more core functionalities can and will be migrated. While many financial services companies have migrated substantial workloads to the cloud, the industry is far from full adoption when it comes to core, back-office workloads. Of financial services companies currently using a majority cloud strategy in the United States, for example, only half (54%) of their workloads are fully deployed in the cloud. Data and IT security (74%), regulatory reporting (57%), and fraud detection and prevention (57%) rank among the highest workload adoption. Core underwriting activity (40%) and data reconciliation (48%) ranked lowest. Across Europe, cloud usage for core activities like underwriting also scored low with the UK listing only 30% adoption.
  4. Among respondents, there is a very strong positive perception of the potential for cloud technology to assist in business operations and regulatory compliance. Nearly all respondents (>88%) agreed that cloud adoption can:
    1. help adapt to changing customer behaviors and expectations,
    2. enhance operational resilience,
    3. support the creation of innovative new products and services,
    4. enhance financial services institutions’ data security capabilities, and
    5. better connect siloed legacy software infrastructure within financial services institutions.
  5. Certain regulator-induced challenges, including the complexity of sectorial compliance frameworks and fragmentation, create hurdles to cloud adoption for financial services companies. While 88% of respondents had a positive view of current regulatory efforts to provide guidance and clarity for cloud implementation, the results showed that more needs to be done to facilitate adoption. Most respondents (84%) agree that regulatory reviews and approvals take too long because of regulatory fragmentation across regulatory bodies. And 78% say that regulatory uncertainty over the use of public cloud prevents their organizations from adopting cloud technologies that would otherwise provide benefit to them. Additionally, a third of all on-premises respondents (38%) say that the large investment of resources for the regulatory approval process is a reason why they’re not using cloud services.

“While many banks have already deployed hybrid cloud environments, others are still in various stages of planning and deploying,” said Jerry Silva, research vice president for IDC Financial Insights. “Clearly, hybrid infrastructure is a reality, and financial institutions must focus not only on leveraging the modern infrastructure model to gain efficiencies, resilience and agility, but also on taking the necessary steps to manage such environments, including the security and compliance of cloud services.”

 

Future recommendations for financial services regulators

Financial services firms should continue to maximize the potential of technology by migrating more core workloads to the cloud, as well as actively considering multicloud and hybrid-cloud strategies. Such strategies enhance resiliency of existing IT infrastructure and reduce concerns over vendor lock-in.

The research also points to steps that regulators could take to provide additional clarity and guidance, such as aligning regulatory reviews across agencies to avoid fragmentation; developing regulatory “safe harbors” for cloud adopters based on adherence to accepted standards and best practices; training regulatory staff on emerging tech; and advancing data reporting requirements via cloud and related technologies.

In the past few years, many regulators across the globe have taken a robust approach to rationalizing rules and guidance to cloud adoption in the financial sector, which has helped significantly stimulate adoption. But further assurances and harmonization of best practices around supervision is needed to advance risk-based and secure digital innovation.

At Google Cloud, we’re committed to working with financial services customers and regulators to provide them with controls and assurances on risk management, data locality, transparency, and compliance. We are constantly engaging with regulators to share information, respond to their considerations and concerns, and address questions in the interest of transparency and building trust.

 

Research methodology

The survey was conducted online by the Harris Poll on behalf of Google Cloud, from December 7, 2020, to January 4, 2021, among 1,363 senior executives in France (n=113), Germany (n=178), the UK (n=192), Hong Kong (n=99), Indonesia (n=100), Japan (n=142), Singapore (n=71), Australia (n=134), Canada (134), and the United States (n=200) who are employed full-time, part-time, or self-employed whose main functional role is in risk/compliance or IT at a company in the banking, finance, or financial services industry with a title of director level or higher. The data in each country were weighted by the number of employees to bring them into line with actual company size proportions in the population. A global post-weight was applied to ensure equal weight of each country in the global total.

 

Business

HOW MERCHANTS CAN IMPROVE THE ONLINE PAYMENTS EXPERIENCE

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By Alan Irwin, Senior Director of Product at Global Payments UK

 

The dramatic increase in online shopping over the past 18 months has encouraged many businesses to invest in developing their omnichannel shopping experiences. The reasons vary – some are keen to capitalise on the trend of older shoppers migrating towards ecommerce and some are trying to make up for loss of sales in brick-and-mortar stores during the pandemic. It is also true that many businesses are shifting their models to sell direct to consumers to avoid high marketplace fees and are therefore building their ecommerce channels for the first time.

The checkout experience is arguably the most important and delicate part of the ecommerce transaction, as it can make the difference between a happy customer likely to return, and a shopping cart abandoned out of frustration and confusion. A survey from March 2020 suggested that 88% of online shopping orders were abandoned, i.e. not converted into a purchase. A seamless, customer-centric online payment experience is therefore critically important in ensuring completed transactions. But with so many payment providers available, what should businesses be looking for when trying to keep friction to a minimum?

 

Keep clicks to a minimum

Less touchscreen interaction equals less abandonment. Adapting the payment page to fit any device and supporting popular mobile digital wallets like Google Pay ensures a seamless, stress- and hassle-free checkout experience for the customer and keeps clicks to a minimum. Friction can present itself in the most minor features – for example, when the customer is navigating the payment form, the appropriate keypad should be shown to the customer when required. It’s much easier to enter a card number using the dial pad instead of switching between QWERTY keypad layouts.

Simplifying online forms with autofill and tokenisation also significantly reduces friction at checkout and shortens necessary time taken. Ensuring checkout forms are tagged correctly for “autofill” is a great way to offer customers a single-click to input the payment, shipping, and billing data that they have stored in their browser profile. Similarly offering a guest checkout option will help convert customers who are in a hurry or looking for a one-off purchase. This can also be achieved by offering to store the payment details (called ‘tokenisation’) for express repeat and one-click purchases.

 

Make it easy to understand

A tailored payments approach can increase both domestic and international global sales. By offering a checkout experience in the customer’s language, the option to pay in their currency of choice, and use their preferred method of payment (whether it’s PayPal, Alipay or card), businesses can build loyalty quickly and put customers at ease. It is equally important for merchants to ensure they always display simple direction and information about next steps to instil confidence and prevent customer drop-off. The customer should be informed of what is happening at every stage in the process, for example, whether they will proceed to SCA (Secure Customer Authentication) next or go straight through to completion.

In addition, validating forms in real-time means merchants can highlight potential errors to the customer early on, and payment providers should provide this functionality. This could be an invalid expiry date, an incorrect digit in the card number or incorrect CVV number based on card type. When issues are only flagged at the end of the process, this forces the customer to go back through the steps to figure out the error. Real-time signposting of problems removes this potential friction and reduces the potential for a declined transaction.

 

Ensure seamless security

Merchants should work with a payment partner who offers the right blend of security and compliance management without it coming at a cost to the end-to-end checkout experience for the user. Instilling trust and security in your checkout flow while utilising the right solutions to drive seamless authentication flows will increase customer confidence and help prevent drop-off.

The greatest level of security and control comes from either utilising hosted payment fields that the
merchant can natively integrate into their checkout flow, or a hosted payment page where they can
manage the look and feel. Showcasing your brand on the checkout page with trust signals and logos also adds to building trust with the customer.

Staying ahead of regulations is also important. Secure Customer Authentication (SCA) will soon be mandatory in the UK for all eligible digital transactions, and this doesn’t have to be a friction-full process. Tools like Transaction Risk Analysis (TRA) and Exemption Optimisation Service (EOS) can quickly score transactions and drive exemptions where there is the right blend of transaction risk.

 

The devil is in the details

These three rules for successful ecommerce checkout experiences may seem straightforward, but it is important to apply them at a micro level. It can take only one minor point of friction to cause a customer to abandon their cart, and this will inevitably be replicated across other similar customers. It is critical to identify friction points early on and anticipate customer needs throughout the process. Discussing these points and any opportunities to improve customer checkout experience with your ecommerce team and payment provider is an important first step towards ensuring your entire shopping experience remains competitively seamless and loyalty is won. It may be that your payment provider cannot address them, in which case it could be time to move on in order to stay competitive.

 

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Finance

NAVIGATING FINANCIAL SERVICES IN 2021: LOW-CODE TO THE RESCUE

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Nick Ford, Chief Technology Evangelist, Mendix

 

Financial services are the poster child of great digital transformation: today, Britons can pay from their watches, check their balance directly from their phone at any time and even automate trading. This level of innovation isn’t only about customers: traders are able to operate faster than ever before thanks to better predictive analysis and forecasting tools, and finance teams are able to collaborate from anywhere in the world.

While we embrace all this innovation, it’s easy to forget that the reality of the sector is incredibly complex. The radical changes induced by COVID-19 have highlighted how challenging maintaining innovation today really is, while putting more pressure on IT teams to accelerate the digital transformation of the sector even further.

On top of this, the sector is one of the most affected by Brexit. Mendix’s Navigating the UK Landscape research found that businesses in the financial services sector have serious concerns about the impact of Brexit on their industry. Many believe that Brexit has damaged the reputation of the UK as a centre of finance (67%) – as well as creating functional challenges for businesses in the country.

Many financial services organisations are turning to technology, and specifically low-code, to deal with these challenges. This piece will look at how firms in the sector can use low-code to navigate the new world.

 

A sea of challenges

Financial services are complex: there are thousands of products to choose from, from savings to investment and mortgages. These services are then managed by lots of different companies, creating an additional level of complexity: banks, fintechs, brokers, wealth management specialists, government bodies… the list goes on. To add yet another layer, there’s a network of regulations, which change over time, forcing IT leaders to constantly keep on top of the latest evolution in the sector. Knowing these is only the first step: every time new laws are implemented, the sector needs to adjust to them, and that can mean anything from revising security protocols to radically changing the way information is processed, transmitted or audited.

This may already look complicated, but the real complexity starts underneath, in the realms of processes that the IT manages to keep the company operating as normal. It would be fair to say that the mission of financial IT leaders is often underrated: they deal with antiquated systems dating back decades, inadequate data management processes and minute security and compliance considerations every day, simply to keep the business afloat. Add to this the need to get all staff to work remotely during the lockdown, and the already time-poor IT leaders are now completely swamped.

Brexit also makes things difficult for financial services organisations. Two thirds anticipate costly and complicated processes for crossborder payments and investments, while 59% believe it will be harder to attract foreign investments. Ultimately, 61% admit they will no longer be able to support some of their customers because of the transition.

 

Tech as a raft

While the sector is mired down with complex processes and inadequate tools, it also needs to deal with a major challenge: fierce competition for tech-savvy customers. Now, all banks, investment firms and wealth management companies are investing in tech to help them cope with new customer demands for easier access to their capital and increased transparency. Two thirds have deployed digital projects to make the business more flexible as a result of Brexit, with data management (62%) and digital processes (62%) particular focal points.

And this is not just about pleasing digitally minded customers: it’s also about improving productivity and operational efficiency, harnessing data, and solving compliance challenges. This balancing act between priorities is gathering pace and spreading across the business: today, IT teams must deliver innovation that’s fast, reliable and secure, and that supports many divisions — all at once. It’s a big challenge, but it’s one that IT leaders are willing to tackle head on: two thirds of IT leaders believe the value of digital transformation initiatives outweighs their inherent risk. Yet, IT leaders know that rushing would be a mistake: although IT teams face high demand for their support, most would not prioritise speed over caution, even if they could innovate faster. This measured pace ensures that financial organisations are delivering the right solutions at the right time, reducing the risk of service disruption and security challenges.

 

Low-code to the rescue

To manage all these priorities, the IT team needs to look beyond its own team to create revenue-generating services that truly answer the clients’ needs – and it needs to empower all developers with the right tools to do so. This improves collaboration between IT and customer-facing staff to design services that suit the needs of the customer base, while reducing the pressure of an already-stretched IT team. Enter low-code: most leaders (58%) say that low-code has enabled the development of new applications to support their companies post-Brexit.

One example of this is a Financial Institution, which perceived its digital user experience lacking and engaged low-code to install a new user experience for its portal, consumer and wholesale digital services. It was able to do this in just eight months, providing numerous benefits to stakeholders.

Low-code software development provides a simple solution to address these constraints and challenges: based on a visual approach for building applications using drag-and-drop components, it enables non-technical staff to participate in creating business applications, even if they have little to no coding experience. Working separately or in close collaboration, professional developers and business-side “citizen developers” can create, iterate, and release applications in a fraction of the time it takes with traditional methods, all under the watchful governance of IT to ensure their applications comply with enterprise standards and architecture.

A low-code approach allows for flexible, iterative app development for many use cases in the financial services sector, including legacy application upgrades to comply with new regulations, apps supporting smart banking or portfolio management, and mortgage application management. With low-code, the financial services industry has the right tools to untangle its complex processes, simplify its evolution and focus on its core mission: keeping the economy thriving.

 

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