Are managed services the shape of the new financial landscape?

The move to cloud and managed services has taken on new prominence today as organizations look to secure and streamline their operations. COVID-19 has presented many financial services firms with a steep learning curve as they adjust their IT, operations and back office to remote and distributed working, with some having to introduce VPN setups for the first time. The pandemic has given added impetus to the move to managed services and cloud delivery, a model that is optimized for remote operation and caters to distributed support. It’s possible that it has fast-tracked the future for financial services.

Today, with degrees of remote working set to become a permanent feature of the banking landscape worldwide, the ability to support a workforce that’s based both on- and off-site will be essential.

Before COVID-19, banking was already showing a strong appetite for different flavors of cloud adoption. Recent Forrester data revealed that 85% of financial services firms were investing in cloud-based banking applications or planning to do so before the end of 2020. The figure for investment in cloud-based infrastructure was 89%.  

Forecasts from Gartner have supported this trend, suggesting that cloud managed services would be worth $80bn by 2024, with a five-year CAGR of 17.5%.

Overall, three drivers have been pushing managed services:

1.    The limitations of on-premise systems mean banks are often reactive and cannot take advantage of the latest patches and upgrades or look at new ways of delivering security software and services.

The focus on security has pushed cloud and digital transformation up CIOs’ priority lists. Whereas 3-4 years ago, CIOs were equivocal about the need for it, today we’re seeing customers reaching out and asking, “how do I get there?”. CIOs also see the benefit of being able deliver services on demand, the way their customers want. Providing a seamless customer experience across all channels remains a major challenge for banks when they are not using the latest technology architectures.

2.    The second driver behind the move to managed services is a pragmatic desire to focus on core business, another imperative that becomes more important in a crisis. CIOs no longer want to be running a major IT shop. They are looking to transfer risk and application management wherever possible, especially at a time when the in-house capability to manage legacy systems is gradually dwindling. Garter points out the additional attractions of cloud for large organizations, noting that: “The speed and agility of public cloud capabilities continue to draw attention to the limitations of on- premises compute resources.”  

Managed service models enable banks to leverage native features and reduce unnecessary customizations. They ensure market standards are adopted and make support, maintenance and upgrades more predictable.

3.    Finally, CIOs are looking for low total cost of ownership (TCO), something that a managed service model can support with its proactive approach to maintenance and simplified architecture. There’s no escaping the fact that there is an upfront investment in the move to this model. But its increased focus on areas such as integration, best practice, auditing and automation all mean that costs can be reduced over the subscription period. Ultimately, it is a move from a capex to an opex model and in some cases, we’ve seen customers achieve 40% efficiency with managed services.

At Finastra we’re seeing the cloud and managed service trend play out in our markets. Many of our new business customers are now looking for a managed service model while existing customers with on-premise systems, who might not have considered the move a couple of years ago, are looking to start their journey.

In the managed service model, high levels of automation guarantee simplified deployment and eliminate the time-consuming back-and-forth between banks and vendor support teams in an on-premise model. Vendor expertise is also more directly applied during deployment.

To learn more about our managed services and cloud offerings, please contact us.