Cloud-hungry BFS enterprises need to navigate public cloud capabilities by value, not brand

The Bottom Line: BFS enterprises need to pick their hyperscaler based on value, not brand name

Is your public cloud provider just a vessel for cheap compute and storage services? That’s so pre-pandemic. As banking and financial services (BFS) firms increase both the volume and strategic nature of workloads in the public cloud, it’s time to reconsider the core value propositions of your hyperscale partners. Security is table stakes.

As any global financial institution will tell you, no single hyperscaler can meet its needs in all geographies. So, from both a practical geographic coverage standpoint and the best practice risk mitigation standpoint, many financial services firms are multi-cloud. The inevitable co-existence of hyperscalers is a firm reminder that no single partner is ever the answer as ecosystems become more critical. Choose wisely based on value.

Cloud-hungry BFS firms are navigating their options based on brand rather than value

Cloud. Everyone’s favorite panacea technology for achieving post-pandemic success is slowly but surely gaining traction in BFS. Although, if we’re completely honest, it’s been there for years in the form of SaaS applications and private cloud data centers. The exciting cloud evolution in BFS is the embrace of public cloud for strategic workloads well beyond the infrastructure-centric compute and storage use cases of yore. The leading hyperscalers are all over the massive public cloud opportunity in BFS, but bizarrely they are all making limited efforts to differentiate their respective unique value propositions. Or perhaps it’s intentional obfuscation so that inherently horizontal cloud capabilities are viewed through an industry lens. Either way, this leaves cloud-hungry BFS firms navigating based on brand rather than value.

Private cloud still reigns supreme in BFS, but public and hybrid cloud are on the rise

In the first half of 2021, HFS conducted our seminal OneOffice™ Pulse study, where we interviewed 800 respondents across the Global 2000 on their post-pandemic plans for technology and business services. Among the study themes, we went deep on current and planned cloud strategies.

The BFS view of the data in Exhibit 1 indicates that the top three workloads being moved to the cloud are databases, business-critical applications, and analytics. While this bears out the point that BFS firms are doing much more with cloud than cost-saving infrastructure pursuits, the critical nuance is in the cloud strategy—literally, what flavor of cloud is used for each workload type. Not surprisingly, private cloud continues to dominate given the ever-present security, regulatory, and compliance requirements for financial services. But we see a notable consideration for public cloud and hybrid cloud as BFS firms strive to enable the work-from-anywhere economy and modernization to support digital services.

Exhibit 1: BFS enterprises are pushing more strategic workloads to the public cloud

Sample: 54 Global 2000 BFS enterprises
Source: HFS OneOffice Pulse Study, H1 2021

Making sense of hyperscaler value props for BFS enterprises

As BFS enterprises push more strategic workloads to the public cloud, hyperscalers are increasingly positioning themselves in an industry context to vie for BFS business more effectively. Across the big three hyperscalers—Microsoft, AWS, and Google—plus IBM, all of these firms have been actively providing cloud services to BFS firms for years. More recently, though, these firms have invested in targeted financial services leadership, identifiable go-to-market approaches by industry, and in some cases, specific BFS solutions. As noted in Exhibit 2, the hyperscalers will not win any prizes for creative naming conventions, opting instead for cloud + financial services as just enough information to convey they are in the industry game. Despite the generic names, the BFS-specific offerings could not be more different.

Exhibit 2: When hyperscaler offerings for BFS all have the same name, the brand is the only differentiation

Source: HFS Research, 2021, company websites

Here is the HFS take on the BFS value proposition for each public cloud provider. See Exhibit 3 for a simple summary:

• AWS for Financial Services. The 15-year-old public cloud offshoot of Amazon continues to push the envelope of public cloud, endeavoring to enable and support any cloud workload. It aligned its go-to-market approach along industry lines earlier than Azure and Google Cloud Platform (GCP), which has helped yield it an impressive array of BFS clients around the world. Clients such JPMC, Goldman Sachs, Standard Chartered Bank, and HSBC have been very public about their multi-workload transformation approaches with AWS. While the firm’s primary targets in the BFS market are industry-specific use cases for its horizontal cloud services, the firm is developing specific offerings for BFS, such as FinSpace, a managed service to store, prepare, and analyze data targeting capital markets firms. AWS’ core value prop for financial services is its depth and breadth of cloud services.
• Google Cloud for Financial Services. Google Cloud Platform is generally regarded as the #3 challenger to the well-established AWS and Azure machines. However, it keeps adding customers and ecosystem partners, inclusive of BFS firms. Its most visible BFS client is likely Deutsche Bank, which signed on initially in July 2020 and then re-upped in December 2020 with a multi-year “cloud and innovation partnership.” It has also been investing in financial services leadership and developing use cases and solutions for BFS, like its Datashare capital markets solution for licensed market data discovery, access, and analytics. Google, overall, is self-described as a data company. GCP’s core value prop for financial services is not surprisingly data, analytics, and associated artificial intelligence and machine learning (AI and ML) capabilities.
• IBM Cloud for Financial Services. Aside from supplying and running the mainframes that power much of the global BFS market, IBM has co-developed a purpose-built public cloud for financial services firms with Bank of America. It is optimized with security, complex data privacy, and regulatory controls required by BFS firms. It has also invested in onboarding a growing roster of global systems integrators, independent software vendors, SaaS providers, and fintechs, currently topping 100, to help drive innovation and rapid deployment. While it developed its financial services cloud with Bank of America, initially launched in November 2019, other firms such as BNP Paribas, MUFG, Banco Sabadell, and CaixaBank have now joined. IBM’s core value prop for its financial services cloud is data security and compliance.
• Microsoft Cloud for Financial Services. As an enterprise software company and cloud provider, Microsoft has been working with BFS firms for years. Earlier in 2021, Microsoft launched a specific financial services capability when it released the preview of its Cloud for Financial Services, offering a range of cloud services built across the Microsoft product family of Azure, 365, Dynamics, and Power Platform. It has initially built solutions for retail banking such as unified customer profile, customer onboarding, banking customer engagement, and collaboration manager. Cloud for Financial Services will hit general availability in November 2021. Its first public customer is Virgin Money UK. HFS suspects this branded cloud offering needs better articulation vis-à-vis its existing Azure for financial services capabilities. Microsoft’s core value prop for its financial services cloud is Microsoft apps tailored for banking and delivered via the cloud.

Exhibit 3: Same name, different value. Hyperscaler value props for BFS vary wildly

Source: HFS Research, 2021

The Bottom Line: BFS enterprises need to pick their hyperscaler based on value, not brand name