Traditional and modern financial institutions have quite different perspectives on their investments in cloud technology, according to the Capgemini Research Institute‘s World Cloud Report for Financial Services 2025, which was recently released.
While fintechs and insurtechs are pursuing cloud to boost sales (62%), the majority of banks and insurers employ cloud solutions with the primary business purpose of driving operational efficiency (84%). Only 12% of financial services companies, according to the analysis, can be categorized as “cloud innovators”.
The environment that financial institutions operate in is difficult and includes issues including ineffective data collection and management, cybersecurity flaws, complicated regulations, and changing consumer expectations. The paper claims that to reduce these risks, banks and insurers are increasingly using cloud solutions. This is demonstrated by the fact that, between 2020 and 2023, the top 40 tier-one banking and insurance companies worldwide increased their use of cloud-related terminology in their annual reports by 26%.
However, because operational issues continue to sway C-level decision-makers and hold down the return on investment and cloud transformation activities, businesses encounter obstacles to optimizing cloud value. In general, less than 40% of executives express high satisfaction with the results of their cloud solution, which include lower operating costs (33%), increased scalability (27%), faster innovation (26%), advanced data and analytics (24%), and better security and compliance (21%).
According to the report available to the BrandSpur digital news platform, financial institutions’ lift-and-shift approach to cloud migration, quick scaling that results in higher-than-expected costs, complex pricing structures, and ineffective governance and management processes are the main causes of these difficulties.
According to Capgemini’s Global Head of Cloud for Financial Services, Ravi Khokhar: “Cloud adoption should be viewed as the start of a transformative journey that fuels long-term business growth, rather than the end game or destination. What’s clear from our research is that while the technology is seen by financial institutions as a building block, some firms still consider the cloud a cost-saving measure, whereas innovative disruptors leverage it to redefine their operations.
“By taking a cloud-native approach to foster a culture of innovation, banks, and insurers will be better placed to deliver new products and services, enter new markets, and increase customer satisfaction. With generative AI now top of the boardroom agenda, a cloud-based technology foundation can also help the industry maximize investment in new technologies at scale,” Khokhar added.
A multitude of financial, transactional, and personal information about their clients is kept on file by banks and insurance companies. However, managing and protecting this data presents several difficulties. The research states that the majority of industry executives emphasized three primary concerns:
- Siloed data integration is hindered by legacy systems (71%).
- Protection of consumer information and challenges in preserving privacy (70%)
- Poor data quality, with 69% of the data being inaccurate or missing
Financial institutions will soon be subject to significantly stricter compliance standards, especially concerning the expanding use of technology platforms and third parties, as a result of the Digital Operational Resilience Act (DORA) in Europe, which is scheduled to go into effect in January 2025, and growing regulatory pressures globally. The significance of cloud-native solutions is emphasized by the Consumer Financial Protection Bureau’s recent decision on open banking, also known as Section 1033 of the Dodd-Frank Act (3), which keeps the cost of data sharing for the industry low and ensures compliance. Organizations will need to put in more effort to prioritize innovation and extract valuable insights due to increased data, security, and regulatory constraints.
According to the report, 81% of executives believe that their business objectives are hampered by a lack of suitable technology. The majority of respondents believe that robotic process automation (65%), predictive analytics (75%), and artificial intelligence (81%), are essential for sustaining a cloud ecosystem. The maturity and capabilities required for these technologies are currently lacking in traditional financial institutions, though 22% demonstrate capability maturity in robotic process automation, 30% demonstrate capability maturity in predictive analytics, and 15% demonstrate capability maturity in artificial intelligence.
According to the study, 12% of banks and insurers fall into the category of cloud innovators, using a clear cloud vision backed by scalable platforms and established ecosystems to produce better top-line outcomes.
This tactic is yielding noteworthy benefits:
- 32% of innovators surpass upsell and cross-sell goals, while just 12% of their peers do so.
- Compared to 10% of other banks and insurers, 32% surpass data monetization targets.
- 10% of financial institutions surpass creative product development targets, whereas 22% do so.
The report recommends that banks and insurers adopt a data-driven, cloud-focused strategy to boost operational efficiency and innovation. Building a culture that promotes the exchange of ideas and best practices, investing in cloud-skilled personnel, developing apps that are native to the cloud, and democratizing access to technology for all teams are all necessary to achieve this.
