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Financial Services Industry Driving Rapid Changes in IT and Data Center Service Delivery

By Randy Borron, Vice Chairman, Data Center Advisory Group

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The Financial Services industry is being challenged with disruptive trends, forcing traditional companies to continuously adapt to remain competitive. One of the most impactful changes is the new service model emerging from the IT and Data Center sectors. The Financial Services Industry is at a crossroads — drive the accelerated adoption of change in their IT management methods with a focus on IT security or adopt the new data center service models that focus on cost reduction, flexibility, and efficiency.

Irrespective of the approach to IT management, the impact on the global economy from the Financial Services industry is significant. According to a McKinsey Global Institute Report, the $12.5 trillion (US$) in estimated annual revenue represents approximately 16.9% of the global economy as measured in GDP (according to the International Monetary Fund).

Financial technology (“Fintech”) companies are threatening the traditional landscape. Fintech companies consist of both startups and large tech companies such as Apple, Google and Facebook. Fintech is quickly gaining momentum, offering highly online lending and retail payment services, often more effectively and less expensively than traditional banks. To compete, traditional banks must adopt new technologies quickly while focusing on client experience and loyalty.

GAME-CHANGING FINANCIAL SERVICES TRENDS

  • No paper, checks, branch network, or people to interact with
  • 100% online banking through hundreds of new apps
  • Instant 24/7 on line response required for self-help IT applications
  • Enormous increase in data and IT application adoption and flexibility
  • Heightened requirements for network capacity, data storage, and continuous uptime
  • Ever-increasing IT security threats and associated defense costs
  • Pressure to reduce costs, IT and infrastructure capital
  • Pressure to reduce administration and IT staffing
  • Increasing power densities and resulting infrastructure challenges
  • Low latency solutions and focus on customer experience
  • Increasing Big Data and analytics demands to keep pace with consumer behavior

New Financial Industry competition is emerging quickly from:

  1. a) Non-facilities based banking
  2. b) Mobile banking
  3. c) Social medial companies

Not long ago, Enterprise data center development was one of the primary drivers for new data center development. Today it represents 71% of the market, and will continue to drop off dramatically as third party solutions increase.

The financial services industry has led to innovation in data center efficiency, resiliency, and IT security over the last decade. Demand for these factors will remain strong, while disruptive forces will change old beliefs, perspectives and service models.

TRADITIONAL IT MODEL | FINANCIAL SERVICES SECTOR

  • Physical and IT security are paramount, as is controlling all aspects of both
  • Standard practice to own data center assets and control infrastructure
  • Tier III adopted early on
  • Leaders in enterprise data center design build

INSIDE INDUSTRY PRESSURES

  • Reduce need for high capital spend
  • Reduce need to build for 10-15 year capacity estimates
  • Reduce staffing requirements
  • Increase flexibility

The IT and Data Center industries have evolved to provide choices that were previously not available, including:

  • Colocation
  • Wholesale
  • Rapidly growing Cloud and Private Cloud Solutions which make up 9% of the market

Adoption of these services vary, while opinions of the benefits and value of these continue to be debated. Network diversity and availability continue to influence all decisions.

KEY QUESTIONS

  • How will the traditional banks adopt and at what rate?
  • Are the IT and Data Center markets adopting fast enough?

CURRENT DATA CENTER TRENDS

  • Enterprise data centers with long–term capacity are increasingly being offered to third parties
  • Enterprise sites are being sold to operators for manage and lease excess capacity
  • Increasing out-sourcing to Cloud and Managed Services providers
  • Increasing adoption of Colocation and Wholesale Data Centers

The debate for the best fit solution continues. While some institutions feel they need to maintain control and can operate more efficiently, others are finding that the best choice is reduced capital with just-in-time infrastructure and lower operating costs.

The volume of capital and operating expense related to these choices is so great that they are typically board-level decisions. Consequently, there are increasing requirements to examine a variety of solutions in order to develop a business case and recommendation.

Randy_Borron_small2Randy Borron is a Vice Chairman at Cushman & Wakefield with 30 years of experience in data center and telecom switch site acquisition and lease negotiations, and over 33 years of experience in commercial real estate. His data center expertise covers site selection, lease negotiation, portfolio strategy, real estate strategic planning, and account management.

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