Financial services perspectives on the role and real impact of cloud

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1 Financial services perspectives on the role and real impact of cloud

2 Executive Summary Ovum has recently concluded an independent and in-depth survey of 400 senior CIOs within financial services institutions (FSI) in partnership with SAP. The survey highlights the extent to which cloud technologies, including Infrastructure-as-a-Service (IaaS), Platform-as-a-Service and Software-as-a- Service (SaaS), have been widely adopted within the banking and insurance sectors across major regional markets. Key findings of the survey are Cloud is business as usual for the significant majority of FSIs and continues to grow in importance SaaS has moved beyond horizontal services to support the whole business ecosystem Cloud is no longer just about cost reduction as FSIs use SaaS to drive business growth SaaS is poised to transform the financial services industry Cloud strategy must focus on the critical role it has in business transformation Cloud is business as usual for the significant majority of FSIs and continues to grow in importance Among the retail banks and insurers surveyed, the use of cloud services is almost universal with only minor differences in take-up across geographic regions, sectors or organizational size. Across both the banking and insurance sectors, the share of new IT infrastructure spending dedicated to IaaS and PaaS is 28% with SaaS accounting for 31% of new application spend. Further proof of the growing significance of cloud technologies is highlighted by the near-term IT spending plans and the attitude of FSIs toward new project implementation. Of the FSI surveyed, over 37% expect to see a significant increase in spend on SaaS within the next 18 months and with 27% of FSIs choosing SaaS as the preferred option for new software project deployment. Over 42% of FSIs surveyed now evaluate SaaS options as a standard part of the planning process for all new IT projects. SaaS is increasingly supporting the whole business ecosystem Far from being restricted to horizontal activities such as , collaboration and backup, SaaS is increasingly used in support of more vertical and core business functions. Across the FSIs surveyed, 39% are currently using SaaS to support vertical functions within lines of business, with banking showing a greater level of acceptance than the insurance sector. This level of comfort with SaaS is further demonstrated with an approximately equal split of projects focused on efficiency benefits versus those with driving business growth as an objective.

3 Cloud is no longer just about cost reduction as FSIs use SaaS to drive business growth Reducing the need for internal development, reducing overall IT cost and greater focus on strategic IT initiatives are the key benefits sought by organizations using SaaS. However, the survey highlights a shift in priorities among FSIs as these benefits are increasingly accepted as the norm when using SaaS. Both banks and insurers are increasingly looking to cloud technology to drive greater organizational agility, with both geographic expansion and flexible process redesign being cited within the top five benefits sought through the use of SaaS. Ovum believes that FSIs are now beginning to perceive cloud technology as more than a means to reduce IT costs, increasingly seeing it as an enabler of organizational transformation to drive business growth. SaaS is poised to transform the financial services industry The survey also revealed that many banks and insurers believe SaaS will transform their industry - the only differences being the pace of change. While 47% of FSIs surveyed expect that SaaS will transform the financial services sector within five years, 20% believe this will be the case within t wo years. This transformation will be driven by SaaS allowing FSIs to develop and launch new products much more rapidly, both in existing and new markets; this is the view of 80% of the survey respondents. An even more profound impact is the democratization of IT with 79% of respondents believing that cloud technology enables smaller, or even completely new entrants, to compete with much larger and dominant players. Cloud strategy must encompass business transformation The potential for cloud to level the playing field and enable smaller brands and new entrants to disrupt the market presents a clear danger to those incumbent players who adopt a wait and see approach to SaaS. These FSIs risk being swept away by more innovative and agile players and new competitors. In planning their IT strategies, banks and insurers must focus on the transformative role SaaS can have on their organization in a context of wider industry change. SaaS should not be viewed as an extension of business of usual, or a route to an alternative pricing structure; the FIs which succeed in the future are the ones that put business transformation at the heart of their cloud strategy. This presents a number of challenges, not only from a technology perspective, but also in terms of an FSI s culture, structures and ambitions.

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