There is no more room for doubting the cloud. Regulators have become acclimated to the concept of remote processing power and clients have been reassured as to its safety. Now the value proposition is laid bare and the current rate of adoption appears to be entering exponential mode.
For 3-year-old collateral management firm CloudMargin — whose offering handles margin requirements across multiple counterparties for multiple asset classes — the embrace of cloud technology helped it grow its client base by 50 percent so far in 2017 to more than 30 asset managers, insurance agencies, banks and brokers, utilizing a network of more than 20 exchanges.
“People are much more comfortable with the cloud than they were six months ago and even more comfortable than they were 12 months ago. It’s definitely a trend,” said CloudMargin CEO Steve Husk. “I talk about dinosaurs and mammals. I think the dinosaurs are really those institutions that still want to build walls around IT centers and make sure everything is kept in-house.”
Google Trends chart of cloud computing (blue) and Amazon Web Services (red) as search terms over time
The cloud undoubtedly represents a threat to these dinosaurs. In CloudMargin’s case, and many others, the superiority comes from speed, uniformity and cost savings. For example, CloudMargin recently sat down with a client shopping for collateral solutions. CloudMargin was able to nail down the deal, getting the customer up and running in five weeks for around $500,000. Going with a competitor, an “on-premise” software provider, meant the client would have spent seven figures and 15 months waiting for it to be fully implemented. Plus, there is just one version of CloudMargin’s offering no matter the size of the customer — payment is based on volume.
“We don’t differentiate ourselves on functionality – that’s a given,” said Lee McCormack, CloudMargin’s head of strategy and product development. “It’s the business model, it’s the deployment method, it’s the cloud — that’s the unique selling proposition.”
By using the cloud, the firm can rapidly deploy updates with immediate effect. It means “everybody is always on the latest version” of the product, according to McCormack — a critical part of ever changing financial regulation. CloudMargin also separates itself from legacy tech vendors with its early focus on design, hiring designers before hiring engineers to build the product.
They are far from alone in the derivatives world though. Established companies and startups alike are deploying more cloud-based services. Trading Technologies, for example, made a major shift in its business two years ago by rebuilding its futures trading platform using the cloud without hampering speed. Many others from CME Group to upstart Neurensic, a purveyor of compliance software that uses artificial intelligence, are using cloud services to handle massive amounts of data and storage needs.
JPMorgan, Goldman Sachs, DTCC and Nasdaq are just a few others relying on it now. It has been estimated by research firm IDC Financial Insights that by 2019, cloud services will have saved the biggest banks $15 billion in technology spending. And finance falls into a much broader context of more companies adopting the cloud across industries.
Then there’s the cloud infrastructure landscape — a $7 billion industry in Q4 2016 — dominated by Amazon Web Services (AWS). Microsoft, Google and IBM come in second, third and fourth. In this past quarter, Microsoft’s cloud revenue grew more than 8 percent, and Amazon, the leader in the space with some 40 percent of market share, grew its cloud business by 47 percent. IBM just doubled down on its ambitions by partnering with China’s Wanda on cloud initiatives. The sector as a whole is growing by 50 percent annually.
There will be growing pains though. On February 28, Amazon Web Services went down and took a huge swath of the internet with it during a four hour disruption. It was estimated by cyber risk analysis startup Cyence that the outage cost U.S. financial companies $160 million. While the reason for the outage turned out to be an embarrassing human error, it still looks like there’s nowhere else to go but up for remote processing and storage. After all, $160 million is a small sum compared to the long term savings represented by cloud technology and fat finger errors can happen whether cloud-enabled or not.
And let’s be honest, isn’t it about time people stopped relying on Excel spreadsheets for complexities such as collateral in the 21st century?