Traditional brokerages looking for ways to offset revenue lost from dropping commission fees can look to the public cloud for help. However, the transition won't be easy or happen overnight.
Tim Hockey, TD Ameritrade's outgoing president and CEO, told Business Insider he believes in the efficiencies enabled by public clouds managed by providers like Amazon Web Services, Google Cloud, and Microsoft Azure. But moving off physical data centers and onto remote servers isn't seamless.
We do believe in cloud services, as you know they're dramatically more efficient, Hockey said. We have to balance that with the safety and security of our clients and our financial data.
See more: Wall Street plans to spend nearly half its IT budget on the public cloud in 2020. Here's where firms see the biggest benefits, and what's still holding them back.
Hockey is in an interesting position, having announced in July that he will resign by early 2020 with the board stating his departure would be the best path forward for TD Ameritrade's growth.
An advocate for increased tech spend, TD Ameritrade's tech budget has more than doubled since Hockey joined the brokerage in October 2016.
The technology spend is the golden dollar, he said. It might just feel like it is another dollar on your expense line, but it is by far the most clamored after dollar by any of our business leaders.
All eyes are on traditional discount brokerages such as TD Ameritrade, Charles Schwab and E*Trade following their recent announcements to drop their trading fees. The choice to no longer charge for trades is a substantial one to the bottom line. Hockey said based on TD Ameritrade's 2019 revenue, dropping trading commissions is roughly $900 million in lost revenue.
As a result, brokerages are looking for ways to stretch their budgets. The use of public cloud, which Wall Street has grown increasingly comfortable with, is one area firms could investigate. By moving workloads off physical databases and servers and onto the public cloud, firms typically can cut costs and innovate quicker.
A recent survey by Refinitiv found financial firms will invest nearly half their tech budgets in 2020 into the public cloud.
TD Ameritrade is already using several services that sit within the public cloud, including Slack, Salesforce and Office 365. Vijay Sankaran, TD Ameritrade's chief information officer, told Business Insider via email the firm will increase its adoption of the public cloud based on the value provided, including the total cost of ownership.
It's dramatically better service levels and it enables so many different things, Hockey said.
Read more: $1.2 trillion brokerage TD Ameritrade is developing a Netflix-like recommendation engine in a bid to win investor attention
However, TD Ameritrade's current use of public cloud are all with non-core applications. Its trading apps, for example, still sit within the the company's data centers.
Hockey said some of the hesitation around the public cloud stems from the safety and security of clients' financial data, a common refrain amongst those on Wall Street. A significant investment is also required to make such a transition, he added.
To transition further there is some work involved, Hockey said. We will crawl, walk, run — I guess is the point — as we get more comfortable.
And then there is no guarantee a move to the public cloud will be cheaper. Bank of America, for one, saved $2 billion in annual infrastructure savings due in large part to its decision to build out its own private cloud as opposed to moving to the public cloud, which it still feels is overpriced.