Only 37% financial cos have undergone actual cloud transformation, says Capgemini report

While nine out of 10 (91%) of banks and insurance companies have started their cloud journey, only 37% of firms have undergone actual cloud transformations, according to the Capgemini Research Institute's “World Cloud Report on Financial Services” published on Friday. However, this high rate of adoption does not result in effective cloud adoption at scale, as more than 50% of firms have only moved a small portion of their core business applications to the cloud.

The report reveals that 62% of financial services firms have begun using artificial intelligence (AI), with the goal of utilizing it across the entire value chain within the next two years. However, AI and machine learning technologies are not being used at scale in the industry and therefore have limited impact.

The research also shows that cloud investments have primarily been focused on modern, user-friendly, AI-based customer-facing applications. Less investment is being made in back-end core processing systems, resulting in a poor overall user experience.

According to the report, migrating internal core systems to cloud-enabled ecosystems and platforms is crucial to unlock the full potential and efficiency of AI. This will lead to a wider range of business growth opportunities in the future. Currently, firms are testing generative AI use cases in areas such as customer onboarding, credit analysis, financial planning, policy renewals, and client servicing models.

The report also highlights that the cloud also plays a pivotal role in helping the industry manage ESG reporting and achieve sustainability goals. It provides essential ESG impact measurement tools and improves transparency and reporting measures.

Ravi Khokhar, Global Head of Cloud for Financial Services at Capgemini, emphasizes the importance of cloud adoption for financial services organizations. “Moving to the cloud is necessary for driving innovation and gaining a competitive edge. Cloud-enabled systems are crucial for realizing the benefits of generative AI,” he said.

Industry executives in health insurance, life insurance, capital markets, payments, retail banks, and wealth management identify risk management and customer relationship management (CRM) as key areas for early cloud adoption. In wealth management, cloud-enabled fraud detection techniques are seen as beneficial for data-driven risk management decisions. Retail banking executives highlight the transition to cloud-enabled automated processes and integrated analytics for credit risk management.

Insurers are exploring data-driven personalized value-added services to align with customer preferences. Among life insurance executives, customer relationship management is the highest priority for their cloud journey.

Despite the advantages, industry executives express concerns about cloud migration. Data security, high operational and transformation costs, and regulations such as data sovereignty are identified as potential barriers, according to the study.

The Digital Operational Resilience Act (DORA) mandates that financial institutions subject to EU regulations must implement robust systems, protocols, and tools for reliability, capacity, and resilience. Sovereign cloud, which provides secure and independent cloud computing infrastructure, is becoming a common deployment option.

To be sure, a research report published in June by IT services company, Tata Consultancy Services (TCS), despite significant progress in recent years, the study reveals that businesses still have a long way to go to unlock the full power and potential of cloud. For example, the study noted that 66% of respondents are still in the earliest stages of transition towards mature digital ecosystems.

Besides, critical skills shortages continue to affect businesses in the cloud space, with over half (52%) of respondents reporting a lack of full cloud proficiencies in-house, the study said.

“Cloud is a frequent source of short-term ROI anxieties, but growth and transformation is a long game. Reconciling these two realities is a challenge and a necessity, but fully achievable with the right strategy and planning,” said Ramanujam.

“This is critical because the cloud is now the unifying digital fabric of every enterprise, fuelling powerful technologies—from generative AI to edge and quantum computing—and is ushering the next wave of innovations now and into the future,” he added.

To be sure, a research report published in June by the IT services company Tata Consultancy Services (TCS) reveals that despite significant progress in recent years, businesses still have a long way to go to unlock the full power and potential of the cloud. For example, the study noted that 66% of respondents are still in the earliest stages of transitioning towards mature digital ecosystems.

Furthermore, the study found that critical skills shortages continue to affect businesses in the cloud space, with over half (52%) of respondents reporting a lack of full cloud proficiencies in-house.

"Cloud is often a source of short-term ROI anxieties, but growth and transformation are long-term endeavors. Reconciling these two realities is a challenge and a necessity, but it is fully achievable with the right strategy and planning," said Ramanujam.

"This is crucial because the cloud has become the unifying digital fabric of every enterprise, fueling powerful technologies—from generative AI to edge and quantum computing—and is driving the next wave of innovations now and in the future," he added.