In the past couple of months, I have talked to the majority of the world’s largest banks about what is necessary to drive successful cloud adoption at enterprise scale. These conversations have a lot of things in common with one another, and I often send the same research notes as a follow-up to our conversations. Here are those notes, with some context. The notes are all behind the Gartner paywall, in most cases Gartner for Technical Professionals, but some of these are available to IT Leaders clients, or Executive Programs clients.
Banks are indeed really moving core banking to the cloud. The long-held adage that “banks might put new systems of innovation or systems of engagement in the cloud, but they’ll never move core banking”, is crumbling. Gartner has statistics supporting this, which you can find in “Core Banking Hot Spot: Moving the Core Into the Cloud“.
Banks cite application modernization as a critical driver for cloud adoption. An increasing number of banks are migrating a substantial percentage of their existing application estate to public cloud IaaS (and PaaS). Supporting survey data can be found in “Application Modernization Is the Most Common Identified Priority for End-User Cloud Adoption in Banking and Investment Services” (but other priorities are closely clustered in importance).
Banks are striving to mature their cloud adoption. Some banks have had a lot of ad hoc adoption over the years, while other banks have been more cautious (venturing into a bit of SaaS but sometimes zero IaaS or PaaS). But we’ve hit the inflection point (starting about two years ago) where banks became comfortable with cloud provider security and then seemingly all of a sudden went to a “go go go!” mode in which cloud was viewed as a critical accelerator of digital banking initiatives. (See “Advance Through Public Cloud Adoption Maturity” for a view of typical journeys.)
Central cloud governance is the norm for banks. Banks generally like the Gartner-style cloud center of excellence (CCOE) model where an enterprise architecture function provides cloud governance, brokerage, and transformation assistance. (See “How to Build a Cloud Center of Excellence“.) However, their CCOE model is likely to be federated to empower different business units or regions to take charge of their own destinies (especially when the cloud strategy is more regional than global). And many banks are splitting off a separate cloud IT unit under a deputy CIO, which is effectively a self-contained organization with hundreds of people devoted to the cloud migration and transformation effort.
While banks still do detailed technical evaluation of cloud providers, strategic selection is based on alignment to the IT strategy. Banks still really care about nitpicky technical details, but ultimately, their selection of strategic providers is based on broader IT priorities, just like most other cloud customers these days. (See “How to Initiate the Selection of Strategic Cloud IaaS Providers“.) Sometimes there’s a certain degree of hope for some kind of innovation partnership. (I am cynical about such “partnerships”, especially when they come in the form of vague sales platitudes without contractual guarantees or a close business development relationship.)
Banks tend to be multicloud. The larger the bank, the more likely it is to adopt a multicloud strategy, similar to other enterprises (see “Comparing Cloud Workload Placement Strategies“). However, this does not mean that all cloud providers are treated equally. My anecdotal impression is that in terms of primary strategic provider, AWS dominates the the top end of the market (the largest banks) but that Azure captures the middle of the pack (from the US midmarket banks that tend to outsource their processing, to the banks that are important at the country/region level but not highly global).
Banks are making the transition to a more systematic approach to multicloud. Like many large distributed enterprises, banks often have pockets of cloud adoption, each aligned to a different cloud provider. With the maturation of their cloud journeys, they are becoming more systematic, building workload placement policies to guide where workloads should go. (See “Designing a Cloud Workload Placement Policy Document“.)
Banks worry about cloud concentration risks. Many banks face regulatory regimes that require them to address concentration risk. Regulators tend not to provide prescriptive guidance for what they must do, though. Banks have told me that attempting to maintain multicloud portability for applications essentially destroys the business case for cloud. Portability significantly impacts application development time, thus reducing the agility benefits. Without the ability to exploit the unique differentiated capabilities of a cloud provider, there’s little compelling reason not to just do it on-premises — which might actually be more risky than doing it in the cloud. There are effective practical risk-reduction approaches that don’t involve “maintain constant portability of all my apps”, though. (See “How to Create a Public Cloud Integrated IaaS and PaaS Exit Plan“.)
I hope to collaborate with a Gartner colleague to write bank-targeted research in the future. If you’re a cloud architect at a bank, I’d love to speak with you in client inquiry.
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Thank you, Lydia, for sharing the links to all these Gartner resources. While CIOs have the task of defining a multi-cloud strategy that serves the IT infrastructure needs of the institution, I agree, it’s the cloud architects that are tasked with the actual execution.
That said, I’m now thinking that the future application of cloud services might be focused more on a bank’s business innovation leadership strategy, and less on IT leadership strategy.
My point: the fintech start-ups seem to focus more on utilizing cloud services as a foundation for the introduction of new offerings, rather than the optimization of prior traditional offerings. Financial services are being disrupted by creative ideas, not cost-cutting measures enabled by public clouds.
What are your forward-looking thoughts on this topic?