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How banks journey into hybrid cloud and out to the edge profitably

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By Simon Michie, CTO, Pulsant

 

Banks, once viewed as highly conservative, are now increasing their spending on cloud services, recognising they must innovate, reduce costs and become far more agile to compete. Market research company IDC estimates global cloud spending by banks will increase by more than 16% per year up to 2024, hitting $77bn annually.

Some 67% of executives taking part in an Accenture global survey of banks said more than half their mainframe workloads should be in the cloud within five years. This change of approach has come about as senior decision-makers in banks realise that competition from challenger banks and FinTechs dictates that they must move into the cloud to be more dynamic and responsive. But they must also anticipate the next big advance in enterprise infrastructure, which is edge computing, moving processing power closer to the end-user or customer.

 

Banks need the cloud so they can compete

More than ever, banks need to push innovation and incorporate data-hungry artificial intelligence capabilities into their applications. This is how they will provide the slick interfaces, new services and ease-of-use that the challengers offer. Competitiveness is no longer just about attractive loan rates or current account interest – it’s about providing a great experience.

Institutions now need the ability to spin up customer contact centres or websites at short notice in relation to events such as pandemics, sudden interest rate-rises or new opportunities triggered by changes in the law or regulation. It is worth remembering how organisations with very significant on-premises IT infrastructure struggled to adapt to the remote working requirements of the pandemic.

Banks increasingly need to integrate crypto-currencies and cardless payment platforms and accommodate the growth of non-fungible tokens (NFTs). These are capabilities that institutions can only provide or manage effectively through the inherent flexibility and scalability of the cloud.

 

How to go into the cloud effectively?

Yet just as UK financial institutions move tentatively towards cloud-adoption, the Bank of England’s Prudential Regulation Authority has become interested in the resilience of public cloud providers, also cautioning against the dangers of vendor lock-in and over-reliance on individual companies.

The challenge for established banks, therefore, is how to enter the cloud in the most effective and compliant way without becoming over-dependent on AWS, Google and Microsoft Azure and other major vendors. UK and EU data protection and sovereignty laws also make lodging personal information with US hyperscalers problematical and potentially dangerous.

Given these constraints, it is obvious that banks must instead opt for hybrid infrastructure, using the combination of public cloud and on-premises environments. Hybrid cloud allows banks to achieve the balance between flexibility and security they need so they place workloads where they work best or are best protected. For most banks, hybrid is no longer a stopping point on the journey towards full cloud deployment, it is the optimum destination.

 

The journey into hybrid cloud is much simpler

Thanks to partnerships with third-party experts in the field, adoption of hybrid infrastructure is no longer a fraught experience for banks. A jointly drafted cloud purchasing strategy will implement a cloud adoption and transformation framework, operating on the key principles of discover, plan, implement and decommission. Banks can prioritise data and applications for deployment, whether on-premises, in private cloud, colocation data centres or with public cloud providers, including the hyperscalers.

Colocation can be highly attractive, because a bank locates its own IT in a secure and efficient data centre run by specialists. The financial institution makes its own choice of cloud-providers and has no need for time-consuming and costly involvement in physical infrastructure and connectivity infrastructure. More advanced colocation and cloud-providers are compliant with stringent PCI (Payment Card Industry) data standards, enabling secure use of the full range of card payment technologies. They may also comply with the US’s Soc 2 requirements governing the confidentiality, integrity and privacy of customer data.

 

New applications and revenues with greater freedom

The flexibility of a hybrid strategy means banks can advance implementation of newer, revenue-generating cloud-native applications, or integrations with cardless payment platforms, with greater confidence. At the same time, business-critical applications that are not cloud-compatible, or that require unique levels of management and security, can remain on-premises. Banks that want to use applications or computing capabilities specific to individual vendors can do so without fear of lock-in or vendor-mandated changes in technology and operational practices.

The advent of a new generation of management tools designed for hybrid infrastructure also enables banks to keep track of their data and applications and to right-size all their deployments for maximum efficiency. Banks can spin workloads up and down in relation to demand, avoiding the dangers of over-spend without risk of being under-resourced when faced with new demand or business opportunities.

More advanced tools give full visibility and costs of all data and workloads from a single interface to provide complete control. Such tools also have one further major advantage – they are fully enabled for the next big advance – the edge.

 

Moving out to the edge 

Working in combination with 5G connectivity, edge computing removes the disadvantages of location, shifting data and workloads to regional data centres to deliver faster, low latency responses for end-users. This has obvious advantages for financial institutions seeking to offer more responsive mobile apps or payment platforms that can relate to the customer’s location, for example.

But it also has significant potential for high-speed trading and many other use cases involving artificial intelligence, such as facial recognition technology for authentication. In combination with software defined technologies which optimise connectivity for critical applications and uses automated network monitoring to reinforce security, the edge will open up a huge array of revenue possibilities for banks.

All this means banks must now think very hard about a hybrid strategy, especially when they want to grasp the full potential of edge computing. The arrival of a new generation of cloud management platforms has transformed hybrid strategy implementation and management. Banks can enjoy the best of both worlds, gaining the flexibility and innovation of the cloud and the advances in edge computing, while maintaining their most sensitive data and workloads in secure locations. They can maximise their agility and innovate boldly, without sacrificing independence to cloud vendors or risking security or compliance infringements.

 

Banking

Wealth Managers and the Future of Trust: Insights from CFA Institute’s 2022 Investor Trust Study

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Author: Rhodri Preece, CFA, Senior Head of Research, CFA Institute

 

Corporate responsibility is more important than ever. Today, many investors expect more than just profit from their financial decisions; they want easy access to financial products and to be able to express personal values through their investments. Crucial to meeting these new investor expectations is trust in the financial services providers that enable investors to build wealth and realise personal goals. Trust is the bedrock of client relationships and investor confidence.

The 2022 CFA Institute Investor Trust Study – the fifth in a biennial series – found that trust levels in financial services among retail and institutional investors have reached an all-time high. Reflecting the views of 3,588 retail investors and 976 institutional investors across 15 markets globally, the report is a barometer of sentiment and an encouraging indicator of the trust gains in financial services.

Wealth managers may want to know how this trust can be cultivated, and how they can enhance it within their own organisations. I outline three key trends that will shape the future of client trust.

 

THE RISE OF ESG

ESG metrics have risen to prominence in recent years, as investors increasingly look at environmental, social and governance factors when assessing risks and opportunities. These metrics have an impact on investor confidence and their propensity to invest; we find that among retail investors, 31% expect ESG investing to result in higher risk-adjusted returns, while 44% are primarily motivated to invest in ESG strategies because they want to express personal values or invest in companies that have a positive impact on society or the environment.

The Trust Study shows us that ESG is stimulating confidence more broadly. Of those surveyed, 78% of institutional investors said the growth of ESG strategies had improved their trust in financial services. 100% of this group expressed an interest in ESG investing strategies, as did 77% of retail investors.

There are also different priorities within ESG strategies, and our study found a clear divide between which issues were top of mind for retail investors compared to institutional investors. Retail investors were more focused on investments that tackled climate change and clean energy use, while institutional investors placed a greater focus on data protection and privacy, and sustainable supply chain management.

What is clear is that the rise of ESG investing is building trust and creating opportunities for new products.

TECHNOLOGY MULTIPLIES TRUST

Technology has the power to democratise finance. In financial services, technological developments have lowered costs and increased access to markets, thereby levelling the playing field. Allowing easy monitoring of investments, digital platforms and apps are empowering more people than ever to engage in investing. For wealth managers, these digital advancements mean an opportunity for improved connection and communication with investors, a strategy that also enhances trust.

The study shows us that the benefits of technology are being felt, with 50% of retail investors and 87% of institutional investors expressing that increased use of technology increases trust in their financial advisers and asset managers, respectively. Technology is also leading to enhanced transparency, with the majority of retail and institutional investors believing that their adviser or investment firms are very transparent.

It’s worth acknowledging here that a taste for technology-based investing varies across age groups. More than 70% of millennials expressed a preference for technology tools to help navigate their investment strategy over a human advisor. Of the over-65s surveyed, however, just 30% expressed the same choice.

 

THE PULL OF PERSONALISATION

How does an investor’s personal connection to their investments manifest? There are two primary ways. The first is to have an adviser who understands you personally, the second is to have investments that achieve your personal objectives and resonate with what you value.

Among retail investors surveyed for the study, 78% expressed a desire for personalised products or services to help them meet their investing needs. Of these, 68% said they’d pay higher fees for this service.

So, what does personalisation actually look like? The study identifies the top three products of interest among retail investors. They are: direct indexing (investment indexes that are tailored to specific needs); impact funds (those that allow investors to pursue strategies designed to achieve specific real-world outcomes); and personalised research (customised for each investor).

When it comes to this last product, it’s worth noting that choosing advisors with shared values is also becoming more significant. Three-quarters of respondents to the survey said having an adviser that shares one’s values is at least somewhat important to them. Another way a personal connection with clients can be established is through a strong brand, and the proportion of retail investors favouring a brand they can trust over individuals they can count on continues to grow; it reached 55% in the 2022 survey, up from 51% in 2020 and 33% in 2016.

 

TRUST IN THE FUTURE

As the pressure on corporations to demonstrate their trustworthiness increases, investors will also look to financial services to bolster trust. Wealth managers that embrace ESG issues and preferences, enhanced technology tools, and personalisation, can demonstrate their value and build durable client relationships over market cycles.

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Banking

2022 ESG Investment Trends

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Jay Mukhey, Senior Director, ESG at Finastra

 

Environmental, Social and Governance (ESG) themes have been front and center throughout the pandemic. While the framework has been surging in popularity for several years, COVID-19 served as a period of reflection causing many companies, investors and other individuals to take these factors seriously. It’s something that we can no longer afford to ignore.

Jay Mukhey

We are witnessing drought, adverse weather patterns, hotter climates, and wildfires with more regularity, raising the profile of the climate crisis. Efforts were renewed at COP26 in Glasgow last November to help address the challenge, with the signing of the Glasgow Climate Pact and agreement of the Paris Rulebook. As a result, we are now seeing record net new inflows into ESG investing and impact.

 

Evaluating ESG criteria

Long gone are the days when ESG issues were at the periphery of a company’s operations. In just a few short years, ESG criteria have become a key metric for investors to evaluate businesses they are considering investing in.

Investor money has poured into funds that consider environmental, social and governance issues. Data from the US SIF Forum for Sustainable and Responsible Investment shows that ESG funds under management have now reached more than $16.6 trillion. It’s not just institutional investors who are embracing ESG, with Bloomberg Intelligence predicting that savers across the world will amass £30.2 trillion in ESG funds by the end of the year.

Due to the multitude of divergent factors that contribute to a company’s success on ESG, it can be tricky to pin down exactly what criteria to measure. Depending on the industry a company operates within, environmental criteria could include everything from energy usage, the disposal of waste and even the treatment of animals.

Social criteria are primarily related to how a company conducts itself in business relationships and with stakeholders. For example, does it treat suppliers fairly? Is the local community considered when the business makes decisions that would impact them? Do they have a statement and policy around modern slavery?

While governance criteria have traditionally been an afterthought, this may be changing. Everything from executive pay to shareholder rights and internal controls are relevant to investors within these criteria.

 

Tracking ESG for competitive advantage

Many experts within the financial services industry point to the power of ESG as a major competitive advantage, if used correctly. It has been noted that increasingly corporations, from big Fortune 500 companies down to small scale-ups, will communicate on their sustainability metrics to grow their business and to attract talent. However, it’s no longer enough to just pay lip service to ESG issues, with abstract commitments increasingly being seen as insufficient. Companies must now quickly progress to concrete objectives that can be measured and tracked.

A wide range of data providers now offer detailed information and tools that can measure ESG performance and effectiveness. Yet major challenges remain around bringing together what is often extremely fragmented data and transforming it into actionable insights.

 

Focus areas for 2022

The ESG criteria that investors measure is by no means stagnant. Complex societal challenges regularly emerge that require the attention of companies. Contributors recognize several topics that demand a sophisticated approach, including the COVID pandemic, diversity challenges and powerful social movements.

Companies operating within the financial services sector face several specific challenges related to ESG, with contributors believing that fintech will also continue to play a central role in finding answers to them.
For example, industry experts expect customers to be more demanding of firms in SME lending when it comes to understanding exactly what impact they are having on the climate. For many financial services firms, 2022 will be the year that they will try to reduce the time it takes to bring ESG products and services to market, such as green loans and mortgages, as well as checking accounts with sustainability and carbon tracking capabilities.

When selecting a service provider, customers are increasingly interested in the ESG credentials of their bank or financial institution. Research from PwC finds that 80% of consumers are more likely to buy from a company that stands up for environmental and governance issues. Consumers are one of the main drivers of ESG and many are putting their money where their mouth is. It’s a trend that’s not going away; financial institutions need to start implementing their strategy for ESG now.

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