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Enterprise Data: The Cloud vs On-Premise Decision

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By: Kishore Seshagiri, Chief Digital Officer, Broadridge India

In today’s rapidly evolving digital landscape, data has become the lifeblood of the global economy. Humanity is projected to create or replicate 175 zettabytes by 2025, a multifold increase from 33 zettabytes in 2018. For context, 1 zettabyte is a trillion gigabytes and a Blu-ray stack of this data set could bridge the Earth and the Moon. It is therefore unsurprising to describe data as the bedrock on which basic operations of sectors like modern financial services are built and is also the platform upon which technologies like artificial intelligence (AI) are driving innovation. Given how much the efficient handling, storage, and analysis of data is crucial for margins and competitiveness, data centers, and cloud technology are of particular importance to fintech companies. Now the question is when one should opt for cloud solutions or for on-prem solutions. This could possibly be one of the biggest decisions that an enterprise can take wherein every dime matters and the trust factor plays a major role. 

Data centers have become the heart of modern finance, serving as robust repositories for sensitive financial information that BFSI organisations require to process transactions. These centers ensure data integrity and security through advanced measures like encryption, multi-factor authentication, and round-the-clock monitoring. This heightened security is needed not only for the protection of sensitive customer data but also to keep up the trust that it creates between financial institutions and their clientele as security and privacy are amongst the top concerns of most customers in the finance sector. 

Data centers also lay the foundation to create differentiated insights for financial services. Data processing using complex machine learning algorithms can generate market intelligence with actionable insights in real time, a trend that is only increasing as AI solutions become increasingly complex. Take the latest craze of Generative AI dominating many opinion pages and dinner table conservations. One application in fintech companies would be to create an easy-to-use, conversational and intuitive tool to provide technical information to end-users (regular individuals) in easily comprehensible language. Such solutions can only be created through detailed and continuous processing of large and comprehensive data sets.

The Cloud Question

The question of why data centers are so important is somewhat straightforward, but determining how one should establish these data centers is much more complex. Traditionally, the debate has centered around cloud data centers versus on-prem data centers, as each comes with it’s distinct advantages and trade-offs.

Cloud data centers offer unparalleled scalability and cost-efficiency, making them an ideal choice for companies that need to adapt quickly to market changes. They allow businesses to expand their infrastructure on-demand, without the need for substantial upfront investments in hardware and maintenance. Reports from major consultancy firms like Price Water Cooper and Deloitte highlight that cloud adoption in the BFSI sector has been steadily increasing due to these inherent benefits.

On the other hand, on-premises data centers are preferred for in-house functions or use cases that require high resiliency and security, which are top priorities for many BFSI companies. By maintaining complete control over the infrastructure, financial institutions can enforce strict security measures and ensure compliance with regulatory requirements. Additionally, on-prem data centers offer low-latency data processing, a crucial factor for time-sensitive financial transactions.

There is no ‘one-size-fits-all’ approach

In reality, the decision between cloud and on-premises data centers is not a simple proposition. Most organisations in the financial services industry tend to adopt a hybrid approach that combines both types of data centers to optimise their operations. This approach recognises that different scenarios may require different solutions, and it allows businesses to leverage the strengths of each model while mitigating their respective weaknesses.

For instance, a financial organisation might opt for a hybrid solution where customer-facing applications and non-sensitive data are hosted in the cloud for scalability, while mission-critical financial data remains on-prem for enhanced security. Reports from Deloitte’s 2020 Cloud Survey suggest that 91 percent of surveyed organisations have adopted a multi-cloud strategy, indicating a growing trend of combining cloud solutions for optimal performance.

Reducing what is an extremely complex business decision to a binary choice between cloud and on-prem also misses the multiple layers of nuance involved. For instance, there are multiple ways cloud solutions can be differentiated between one another like public vs private clouds. Public clouds use infrastructure outside the direct control of an organisation (think Office Online, DropBox, etc.), while private clouds typically use an organisation’s own infrastructure, allowing it to add firewalls and other security controls. The latter obviously comes with many valuable benefits, but this value is also reflected in the organisation’s balance sheets.

Similarly, another key consideration that is particularly relevant for financial services companies is any transition costs associated with data migration and infrastructure implementation. Extended downtime during the migration process can result in substantial financial losses and damage to a company’s reputation. Therefore, meticulous planning and execution are essential to ensure a smooth and seamless integration of data centers. It may also be the case that the transition costs outweigh any additional savings that accrue from the optimisation and efficiency arising from the new infrastructure.

Cloud vs On-Premise

The importance of data centers and cloud solutions in the financial services industry cannot be overstated. As the BFSI sector continues to embrace AI and big data analytics, efficient data processing will be crucial for gaining a competitive edge. The choice between cloud and on-premises data centers is not a binary decision with a clear winner but rather a strategic one, where organisations must assess their unique needs and challenges.

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