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Cloud for Financial Services Companies When Financial Services Companies Should Move to the Cloud

When Financial Services Companies Should Move to the Cloud

Feb 05, 2025

20 mins read

The financial industry is changing faster than ever. Around 73% of global banking interactions now happen through digital channels. This results in the fintech sector booming, with revenues expected to double and reach over $141 billion in just five years. But as opportunities explode, so do the challenges.

In 2024, 92% of banks planned to boost tech spending, focusing on data, AI, and the talent needed to implement them. In this tech rush, cloud adoption may seem to be a required move to stay on track. But is it?

While a solid use of cloud computing in financial services can boost scalability and innovation potential, it’s not a one-size-fits-all solution. Financial companies must carefully assess their unique needs, regulatory constraints, and long-term strategy before making the move to the cloud.

In this article, we’ll explore the role of cloud computing in banking and finance and help you determine when and if it’s the right choice for your business.

So, let’s get the ball rolling.

The Role of Cloud in Financial Services: When Does It Make Sense?

The financial services industry is heading toward a future where instant, seamless transactions and security are no longer optional but expected. FedNow, an instant payment service launched in 2023 by the Federal Reserve System, exemplifies this shift. Within its first year, more than 1,000 institutions, including major players like Wells Fargo, U.S. Bank, and Service Credit Union, had adopted the system.

As financial institutions modernize, they face a critical decision: should they rely on traditional on-premises infrastructure or embrace cloud computing? On-premises systems offer full control over infrastructure and security but can be costly to maintain, complex to scale, and slow to integrate new technologies. Cloud computing, on the other hand, provides flexibility, cost-effective start, and built-in compliance tools but requires businesses to navigate shared responsibility models and potential data residency concerns.

With the finance cloud market projected to grow at 20.3% annually from 2022 to 2030, it’s clear that many companies see cloud computing in banking and financial services as a strategic advantage. But cloud migration isn’t a one-size-fits-all solution. When does moving to the cloud make sense for financial institutions, and where might on-premises solutions still hold an edge?

Below, we explore the key factors that influence this decision.

Key areas in financial services where cloud delivers the most value
Key areas in financial services where cloud delivers the most value

Managing data security and compliance

Fintech firms, banks, and financial service providers manage vast amounts of sensitive financial data, which makes security and regulatory compliance a must. However, as financial regulations become more stringent, companies face growing challenges in ensuring compliance with frameworks, including the following:

  • Banking regulations. Banks and credit institutions must comply with Basel III, GDPR (for EU operations), and the Bank Secrecy Act (BSA). These require stringent risk management, customer data protection, and anti-money laundering (AML) practices.
  • Securities and investments. Firms dealing with trading, brokerage, and investment services need to adhere to SEC, FINRA, and MiFID II (for European markets) guidelines, ensuring transparency, data integrity, and fraud prevention.
  • Payments and fintech compliance. Payment processors and digital lenders must comply with PCI DSS for transaction security, while fintech firms handling cryptocurrencies or digital assets fall under FinCEN’s AML/KYC regulations.

With on-premises infrastructure, companies bear full responsibility for ensuring compliance, monitoring threats, and updating security measures to align with evolving regulations. This includes:

  • Implementing encryption and data access policies
  • Maintaining and auditing security controls
  • Ensuring real-time threat detection and incident response
  • Keeping up with ever-changing regulatory updates
  • Disaster recovery and data back-ups

This is a significant burden, which requires a dedicated team and ongoing investments in security tools and expertise.

Can cloud ease this burden?

Big cloud providers like Azure or AWS offer built-in security and compliance frameworks. So, unlike on-premises solutions, where companies handle everything internally, cloud adoption follows a shared responsibility model where a cloud provider continuously monitors compliance requirements and implements updates to meet industry standards (e.g., SOC 2, ISO 27001, PCI DSS, GDPR).

The financial company’s responsibility lies in configuring security policies, controlling access, and managing application-level security. The cloud offers pre-configured compliance tools, automated monitoring, and real-time reporting, simplifying audits and reducing regulatory risk.

The cloud also offers advanced security features like zero-trust verification, encryption, pre-configured compliance tools, automated monitoring, and real-time reporting, which can boost security, simplify audits and reduce regulatory risk. According to the Cloud Security Alliance reports 57% of organizations already store or process regulated banking information within cloud services. No surprise since built-in compliance features simplify adherence to regulatory standards and help your company remain audit-ready.

Expanding services

International expansion is a priority for many fintech companies, with 84% reporting plans to enter new geographical markets. One critical consideration in global operations is data localization laws, which mandate that customer data be stored within the country of origin. Over 135 countries have passed such laws, particularly affecting the financial services sector.

Building dedicated data centers in each country to comply with these regulations can be super expensive and time-consuming. Expanding into a new market requires months or even years of planning, including setting up physical data centers, securing infrastructure, and hiring local IT teams. Besides, building on-premises infrastructure requires significant capital expenditure (CapEx) for new data centers, hardware, local backup solutions, and manual failover planning, which can be costly and complex across multiple regions.

With cloud platforms, fintech companies can deploy infrastructure instantly in new regions using existing cloud regions, reducing time-to-market from months to days. Major cloud providers like AWS and Azure offer data localization solutions, allowing companies to store data within required jurisdictions without building physical data centers.

Cloud providers, with their extensive global infrastructure, enable companies to store data within specific regions, ensuring compliance without the need for physical infrastructure investments.

Modernizing legacy systems

Many financial institutions still rely on legacy systems built decades ago. While these systems may remain functional, they struggle to keep pace with modern demands and may be difficult to upgrade. For instance, their scalability may be limited by physical hardware constraints and require new investments for expansion.

The Institute of International Finance (IIF) highlights that financial institutions with fragmented systems can face significant economic and operational inefficiencies, reducing their capacity to serve domestic and international consumers.

While on-premises modernization is possible, it requires massive investments, longer timelines, and ongoing IT maintenance. In contrast, cloud-based modernization allows financial institutions to increase agility and reduce IT burdens.

A prime example of successful cloud modernization is an American bank, Capital One, which migrated its core banking infrastructure to the cloud to enhance scalability, security, and innovation speed. It began migrating to AWS in 2012 and closed its last on-premises data center in 2020, becoming the first US bank to go all-in on the cloud. By shutting down eight on-premises data centers and using cloud-native solutions, the bank significantly reduced IT costs, improved fraud detection with AI, and accelerated product development cycles.

Adopting innovative technologies

Customer expectations are evolving faster than ever, especially among Millennials and Gen Z, who comprise 75% of bank account holders. These digital-first generations expect seamless, intuitive, and personalized banking experiences delivered as easily as ordering a ride or streaming a movie.

Cloud platforms give banks and financial companies the agility and flexibility they need to meet these demands. With the cloud, you can adopt AI, blockchain, and other innovations faster and more easily.

Unlike on-premises setups, which require manual infrastructure scaling, cloud platforms offer on-demand resources to support AI training models, large-scale analytics, and real-time transaction processing. Besides, cloud providers offer low-code and serverless computing solutions, which allow for faster time-to-market for new financial products.

Ensuring disaster recovery and business continuity

Financial services companies cannot afford downtime. Service disruptions due to cyberattacks, hardware failures, or natural disasters can result in millions in losses per hour and long-term reputational damage.

Recent disruptions, such as the ING Australia online banking outages, have highlighted the risks of insufficient infrastructure resilience, scalability, and redundancy. When network performance fails, the ripple effects can be devastating and lead to customer frustration, reputational damage, and even data leakage. Let alone the cost of downtime, which can exceed $5 million per hour for high-risk industries like finance.

However, it’s not just network performance that causes failures. Power outages, server crashes, and even regional disasters can bring financial systems to a halt. Certain regions, like the US East Coast (hurricanes), California (earthquakes, wildfires), and Central Europe (flooding), are particularly vulnerable to such disruptions.

Leading cloud providers guarantee high availability through globally distributed data centers and automated failover mechanisms. Unlike on-premises infrastructure, which requires significant investment in secondary backup locations, cloud platforms store data in multiple geographically dispersed regions. If one data center is compromised, another takes over seamlessly, which minimizes downtime.

For instance, in its service level agreement, AWS guarantees 99.0% to 99.99% uptime for key services (with multi-region redundancy), while Microsoft Azure guarantees 99.95% – 99.99% uptime. Such a level of resilience is possible because cloud platforms store data across multiple geographically dispersed locations.

So when one data center fails, another can take over, ensuring business continuity with minimal impact. Thanks to it, operations can be restored within minutes if a failure occurs, whether due to a cyberattack, natural disaster, or technical issue. Such redundancy is nearly impossible to achieve with on-premises infrastructure alone.

Benefits of Cloud Computing in Financial Services

The cloud is no longer just an option for fintech companies. It has become a necessity for staying competitive in a rapidly evolving landscape. Cloud computing in the banking sector opens the door to new business models, enhances customer experiences, and unlocks operational efficiency that’s impossible by using purely on-premises systems.

Let’s see what else cloud adoption in the banking and financial sphere can offer.

Benefits of cloud computing in financial services
Benefits of cloud computing in financial services

Easier AI implementation

Accenture estimates that generative AI could increase productivity in banking by 20 to 30% and revenue by 6%. No wonder, since AI can power applications like fraud detection and credit risk assessment and take over the lion’s share of customer service. In fraud detection alone, AI can boost productivity by 30 to 50% by automating some currently manual activities and accelerating others.

However, AI models, particularly those used in fraud detection, credit risk analysis, and predictive analytics, require enormous processing power and storage. Cloud providers offer high-performance GPUs and TPUs on demand, eliminating the need for financial firms to invest in expensive, specialized AI hardware. In contrast, on-premises AI deployments require costly infrastructure upgrades and dedicated data centers, which may become obsolete over time.

Besides, leading cloud providers (AWS, Google Cloud, Azure) offer pre-trained AI and ML models, reducing the time and expertise needed to develop AI-driven solutions from scratch. On-premises solutions lack these pre-built capabilities, making AI implementation slower and more resource-intensive.

Driving environmental, social, and governance (ESG) impact

ESG considerations are becoming critical for financial companies as regulators and customers demand more sustainable practices. Achieving meaningful progress in ESG requires not just policy changes but also a transformation in IT infrastructure, from how data is collected to how it’s governed and reported.

On-premises data centers lack the flexibility to capture and process ESG data across operations. To make a real impact and manage and report ESG data successfully, financial companies must rethink their data architecture, adopt strategic data collection practices, and revamp governance models.

Cloud platforms provide the tools needed to centralize ESG data, making tracking, validating, and reporting progress easier. They enable financial institutions to develop advanced data models to capture and analyze ESG metrics down to the certificate level. And, as ESG initiatives expand, cloud platforms with modular, decoupled architecture components allow financial companies to integrate new ESG-focused tools and applications without overhauling their entire system.

Improving risk management

McKinsey states that risk management is one of the biggest opportunities for cloud computing in banking and finance. And there are good reasons for that. The cloud allows fintechs to analyze large datasets to detect anomalies and predict potential issues before they escalate. This is especially critical for compliance with regulatory frameworks, which require detailed monitoring and reporting.

Cloud technology strengthens risk management in two key areas: financial risks (e.g., credit, market, liquidity) and nonfinancial risks (e.g., cybersecurity, fraud, and financial crime). For instance, automated auditing tools available on cloud platforms can ensure adherence to regulations like the Basel III framework or anti-money laundering (AML) requirements, reducing the risk of fines and reputational damage.

However, on-premises solutions with proximity hosting (near stock exchanges) can offer lower latency than cloud-based models, which may experience minor delays. This is because on-premises infrastructure can be physically located closer to the trading platforms, enabling faster data transmission.

In high-frequency trading (HFT), where microseconds matter, even small delays can lead to significant losses or missed opportunities. For these types of operations, having servers colocated in data centers near stock exchanges can give a competitive edge by minimizing the time it takes to execute trades.

Unlocking new revenue channels

Cloud computing also facilitates partnerships with other businesses through APIs and integrations, enabling fintechs to embed their services into third-party ecosystems. This ability to collaborate and expand offerings positions fintechs to capture new markets and revenue opportunities without being constrained by outdated infrastructure.

Take embedded finance, for example. The ability to integrate financial services directly into nonfinancial platforms, like offering loans at the point of sale or allowing instant payments in apps, creates a pathway to new customer segments and monetization opportunities. Cloud computing provides the scalability and flexibility needed to support these dynamic partnerships.

Accelerating ROI

The financial benefits of cloud adoption go beyond operational efficiencies. According to Accenture, 73% of bank executives expect returns on their cloud investments to range from 15% to 76% within just 18 months. This rapid rate of return is driven by the cloud’s ability to offer faster product development, reduce time to market, and scale operations without the burden of high upfront costs.

For banking and financial institutions, a flexible and adaptable technical environment translates into economies of scale and quicker profitability. That’s one of the reasons why the revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2023 and 2028.

So, how does the cloud accelerate ROI?

  • Lower capital expenses (CapEx). Unlike on-premises setups that require large initial investments in hardware and data centers, cloud computing follows an operational expense (OpEx) model, allowing companies to pay only for the resources they use.
  • Faster innovation cycles. Cloud platforms provide AI, analytics, and automation tools that speed up product development and improve decision-making.
  • Scalability without infrastructure constraints. Instead of overprovisioning on-premises servers in anticipation of peak demand, businesses can dynamically scale cloud resources up or down.
  • Reduced IT maintenance. Cloud providers handle updates, security patches, and infrastructure management, freeing up internal IT teams for strategic initiatives.

McKinsey’s Operating Model Index also highlights a clear pattern: financial companies with mature, cloud-enabled operating models experience 20% faster revenue growth and 69% higher total shareholder returns (TSR) compared to their peers. However, the financial impact of cloud adoption depends on careful planning—without a well-defined cloud strategy, institutions risk overspending on unnecessary resources or facing integration challenges.

Cutting costs

Cost reduction is one of the biggest motivators for cloud adoption, with 43% of banks citing it as their primary reason for making the switch. Maintaining on-premises infrastructure is expensive, requiring significant hardware, maintenance, and staffing investments. The cloud eliminates many of these costs by providing a pay-as-you-go model. However, to fully embrace the advantages of the cloud, you must ensure proper resource and cost management during and after migration.

Modernizing payment technology is a prime example of how cloud adoption drives efficiency. McKinsey’s research shows that for banks, the cloud can cut operating costs by 20 to 30% and shorten the time-to-market for new products by half.

NB! While the cloud provides cost efficiency and agility, on-premises solutions may be more financially viable in certain scenarios. For instance, if a company has a stable workload that doesn’t require frequent scaling, a well-managed on-premises infrastructure can offer a lower total cost of ownership (TCO) over time.

Also, it is worth mentioning that cloud costs can accumulate, especially with data-intensive operations. In contrast, on-premises solutions eliminate ongoing subscription or data egress fees, making them preferable for businesses processing vast amounts of internal transactions.

Should Financial Companies Keep On-Premises Infrastructure?

Today, many financial companies see the cloud (namely hybrid cloud usage) as essential for successful digital transformation. In fact, 71% of financial services organizations reported that achieving the full potential of digital transformation is challenging without it. However, on-premises infrastructure is still important and vital for many financial service companies.

Here are several reasons why.

When financial companies should keep on-premises infrastructure

Regulatory compliance and data sovereignty

In certain jurisdictions, financial data must remain within national borders, posing a challenge for fintech companies using global cloud providers. Many cloud platforms replicate and distribute data across multiple locations for redundancy, which may conflict with strict regulatory requirements such as the European Union’s GDPR, Canada’s PIPEDA, and CCPA in the US.

For example, some central banks and financial regulators mandate that transaction records be stored on local servers, making on-premises infrastructure a necessity for compliance. Even when cloud providers offer region-specific data centers, financial companies may face additional auditing and legal costs to ensure compliance.

On-premises systems provide financial companies with direct control over data residency. However, they should still customize their infrastructure to comply with industry standards like ISO/IEC 27001 for information security management and OWASP’s best practices for application security.

Predictable long-term costs

While cloud computing eliminates upfront capital expenditures (CapEx), it introduces ongoing operational expenses (OpEx) in the form of subscription fees, data egress charges, and resource scaling costs. For financial services with stable, predictable workloads (e.g., core banking systems, transaction processing, or fraud detection engines) on-premises infrastructure can be more cost-effective over time.

For example, instead of paying variable costs for cloud storage, computing power, or API calls, a well-maintained private data center allows financial institutions to control their total cost of ownership (TCO). The break-even point depends on the institution’s scale and usage patterns, but for high-volume, steady-state operations, the long-term savings can outweigh cloud convenience.

Control over security

For fintech companies with mission-critical, proprietary tools (e.g., custom-built AI-driven risk assessment models, high-frequency trading algorithms, or fraud detection systems), keeping infrastructure on-premises ensures full control over security configurations.

However, this level of control requires a strong in-house IT team capable of managing infrastructure, monitoring threats, and implementing updates. That is something that not all financial companies have the resources to maintain efficiently.

Lower latency and better performance in specific settings

In high-frequency trading (HFT), real-time risk assessment, and fraud detection, milliseconds matter. On-premises infrastructure, particularly when hosted near financial hubs, can offer lower latency and higher performance than cloud-based models.

Financial institutions engaged in HFT often co-locate their servers near stock exchanges to gain nanosecond-level execution speeds. Even the slightest delay in data transmission can result in lost opportunities or unfavorable trades. Cloud solutions, which rely on distributed data centers, may introduce minor but non-negligible delays due to network latency.

While cloud solutions have made advances in low-latency networking (e.g., AWS Local Zones), on-premises infrastructure still holds the edge in latency-sensitive and high-performance computing scenarios. However, this advantage comes with higher maintenance costs and less flexibility in scaling operations compared to the cloud.


To help you better understand the differences, we’ve made a comparison table between the usage of on-premises vs. cloud infrastructure in the financial industry.

Cloud infrastructure
On-premises infrastructure

Scalability

Instantly scalable; resources can be adjusted on-demand.

Requires manual hardware upgrades.

Infrastructure costs

Lower upfront costs (pay-as-you-go model) but ongoing variable expenses based on usage (OpEx).

High initial capital expenses (CapEx) but predictable long-term costs (in case of stable workload).

Innovation and technology adoption

Faster adoption of AI, blockchain, and open banking APIs due to cloud-native tools and integrations.

Requires custom development and infrastructure upgrades, leading to longer deployment times.

Regulatory compliance

Built-in compliance tools for frameworks like Basel III, GDPR, and AML. Cloud providers handle updates automatically.

Compliance must be managed in-house, requiring dedicated teams and manual updates.

Risk management and fraud detection

AI-driven, real-time analytics for financial and non-financial risks; automated compliance monitoring.

Limited AI capabilities (due to finite processing power); requires in-house fraud detection and risk analysis.

Security and data protection

Shared responsibility model reduces the burden on financial firms. Advanced security features, including zero-trust models, encryption, and automated threat detection.

Complete control over security, but all risk management and monitoring must be handled internally.

Disaster recovery and business continuity

Data stored in multiple locations ensures quick recovery in case of failure (with guaranteed uptime SLAs from providers).

Redundancy is complex and costly; disaster recovery requires dedicated backup systems.

Latency and performance

Optimized for most financial services but may introduce minor latency in high-frequency trading (HFT).

Lower latency for HFT when using on-premises data centers near stock exchanges.

Flexibility and global expansion

Easily deployable in new regions; helps financial institutions meet data residency laws without building new data centers.

Expanding internationally requires significant infrastructure investments and long setup times.

IT maintenance and updates

Cloud providers handle software updates, security patches, and hardware maintenance.

Internal IT teams must manage upgrades, increasing workload and costs.

The major challenge of maintaining on-premises infrastructure is that hardware and software become obsolete over time. Servers, networking equipment, and storage solutions require regular updates and replacements, which can be costly.

Because of this, today, the broader trend in banking and finance is a move toward hybrid cloud infrastructure, as it allows companies to innovate with the cloud while retaining sensitive data or mission-critical systems on-premises.

According to the Flexera State of the Cloud 2023 report, 33% of financial companies already use a combination of on-premises and cloud solutions to manage their financial data. Moreover, 35% handle sensitive customer data, like Protected Health Information (PHI) and Personally Identifiable Information (PII), within this hybrid framework.

In a Nutshell

For financial service companies, the decision to adopt cloud technology should be based on their unique operational needs and long-term growth strategies. While cloud adoption allows for faster innovation, enhanced risk management, and improved customer experiences, success depends on strategic implementation and effective management of cloud resources.

On-premises infrastructure still holds advantages in specific scenarios, particularly for companies requiring strict data sovereignty, ultra-low-latency processing near stock exchanges, or complete control over proprietary systems. While cloud costs can fluctuate with demand, financial services companies with highly predictable workloads may find on-premises solutions more cost-effective in the long run.

To sum up, the future of financial services isn’t about choosing between cloud and on-premises — it’s about finding the right balance. For instance, adopting hybrid and multi-cloud strategies allows financial companies to combine the best of both worlds.

With 9+ years in fintech software development, Leobit can help you navigate cloud adoption and integration to build a tailored approach that aligns with your business objectives and regulatory requirements. Contact us, and we’ll help you develop a cloud strategy that maximizes efficiency and accelerates innovation in your financial services.

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Artem Matsa | Business Development Director