I’ve been at this a decent while now – if any of you are connected with me on Linkedin, you’ll see that I just celebrated my 7 year anniversary at Street Contxt – how time flies! It’s hard to believe I’m coming up on a decade, as it all feels like it’s gone by so fast. As they say, the days go slow, and the years go fast. From that seat, I’ve gotten to see many trends – but the one in progress now stands above the rest in terms of impact and scale.
That big trend we’ve seen finally (and thankfully!) come to market is the broad acceptance and utilization of the cloud in financial services and capital markets. For those of you who may need a quick refresher, there are two major types of software deployments: 1) ‘on-prem’, where the software is deployed onto the customers servers and hosted by the customer, and 2) ‘SaaS (Software as a Service) / hosted’, where the software is hosted by the vendor on their servers (or a cloud provider they use, such as AWS) – think Salesforce, one of the first in this area. There are lots of shades of grey between those two major categories in terms of customization or options, but those are the two major options.
When we started building Street Contxt, we made the decision to be a hosted solution – that is, our customers had to let us host our software for them on our infrastructure. While very common in almost every other industry, it was still early days for cloud adoption in capital markets. We had several would-be early adopters ask if they could host us on-prem, but we stood fast and stuck to our guns on being a hosted solution (something I credit to our CTO and technology team). Back then, many firms wouldn’t touch the cloud with a ten foot stick. They were concerned about security, availability, confidentiality, integrity and privacy – they were giving up control, and that scared internal teams. After all, they used to regularly ask us: how secure is the cloud?
Fast forward seven years and 100% of our clients are hosted in the cloud. In fact, all the firms that originally required an on-prem solution have now become comfortable with a hosted solution. Have we had to make major investments in security, availability, confidentiality, integrity, privacy, and integration? Of course, but the move to accepting the cloud in capital markets will have some massive impacts.
Now to answer your question of “okay, so what will the impacts be of cloud adoption?”
When software is deployed on-prem, it slows down the software vendor and the client. The client has to wait for internal bandwidth to deploy updates and changes. Even with a new release available, this can end up taking months depending on priorities. There’s a reason large firms only update the Microsoft Office suite every 5-10 years. On the other hand, the software vendor has to spend an exorbitant amount of time, resources, and energy maintaining a number of different versions across all their active clients. Ten clients? You might have ten versions. One hundred clients? You get the trend. The bigger you get, the slower you move. You can’t make frequent updates, and have to slow down their release cycle. You have to support old versions. It becomes an operational nightmare. This, in turn, slows down the pace at which software is developed, updated, released, and improved. Everything becomes a quagmire.
As more and more firms in the capital markets (buyside, sellside, corporates, etc.) become comfortable putting more and more applications on the cloud, we’ll see the pace of software innovation exponentially increase. Fundamentally, having a cloud based solution not only helps you get to market faster, but also release, update, and innovate faster. You have one central version. You can update it centrally. You don’t have to worry about maintaining one hundred versions.
I genuinely believe this is an important shift, but one that many won’t notice. It’s one of those changes that happens below the surface, and people tend to only notice the symptoms, not the cause – and the symptoms are everywhere.
Two interesting articles caught my eye over the last few weeks. First, CME is partnering with Google Cloud to make all of its data more easily and readily available. Data feeds are staple of this industry, but cloud hosting provides the opportunity to make them more scalable and cost effective than ever before. Second, Microsoft is leveraging Azure to help broker-dealers comply with the new CAT regulation. Something as computationally intensive as the CAT (consolidated audit trail) will benefit enormously from the scalability of cloud based infrastructure.
There’s another interesting trend: while it might be new for capital markets, in every other vertical and industry there is an all out war between Google, Microsoft, and Amazon to win the cloud race. They all want to be the infrastructure provider of choice. It now feels like that race is coming to capital markets. I’ve been to several of our client’s technology events recently where they have outlined how they plan to leverage one or more of the various providers across their infrastructure. While Amazon (and AWS) have historically been out in front, you should expect the others to be very active over the coming years.
So, what does this mean? It means you should expect to see a rapidly increasing pace of change in the tools and technology available in this industry. You should expect to see tools and technologies enter the industry that were not economically feasible or practical in an on-prem only world. You should expect to see smarter and smarter tools, as vendors can now leverage centralized machine learning and AI, rather than the old siloed, distributed, and versioned solutions.
You should expect to see the pace of change only continue to accelerate – and you should know that one of the foundations of that acceleration is the adoption of the cloud. The pace of technological change is only going to increase as cloud adoption grows. Everyone should be prepared.