Jack Funchion, Vice President of Financial Services, Digital Realty

The financial services sector is at a pivotal crossroads. The industry is facing mounting pressures to modernize following rapid data growth, stringent regulatory requirements, and accelerating artificial intelligence (AI) adoption.

According to Gartner, by 2026, more than 80% of banks will have adopted GenAI. With 66% of enterprises across the wider financial services sector already building AI capabilities into their products and services, according to our Global Data Insights Survey. ¹

This push towards AI and other advanced technologies demands globally connected, scalable infrastructure that can handle increasing complexity. Addressing these challenges is essential for financial institutions striving to stay competitive in a fast-evolving digital economy.

This blog explores the role of colocation in enabling financial institutions to overcome these growing challenges, future-proof their infrastructure, and achieve data and AI success.

AI’s impact on the financial services sector

As AI continues to evolve, its impact on financial services is becoming both broader and deeper—moving beyond high-level innovation into the operational core of the enterprise.

Today’s financial institutions face a dual mandate:

To accelerate AI adoption in pursuit of competitive advantage,
And, to do so within the constraints of an increasingly complex digital and regulatory environment.

From risk modeling and fraud prevention to real-time analytics and customer personalization, AI is being embedded into mission-critical functions. Realizing its full potential, however, isn't solely a matter of algorithms—it hinges on having a data-first strategy, with the right infrastructure and governance in place.

Financial institutions often use high-density data workflows. These include high-performance computing (HPC) systems for algorithmic trading, high-frequency trading (HFT), risk management, and pricing derivatives. These workflows require low-latency, high availability, and scalability, especially the closer they are to trade execution. Some of the key challenges include:

Managing compliance with data residency, transfer, and protection regulations—including General Data Protection Regulation (GDPR), anti-money laundering (AML), fraud detection, and Binding Corporate Rules (BCRs).
Maintaining high-density power and cooling to support demanding workloads
Ensuring multi-layered redundancy to guarantee operational resilience
Accessing a rich connectivity ecosystem to facilitate data exchange and collaboration
Balancing costs with the need for flexible infrastructure that can adapt to changing business needs

While AI offers transformative potential for financial services, fully realizing its benefits requires more than just technological readiness. Institutions must navigate these complex regulatory landscapes, ensuring data sovereignty, and upholding fairness and transparency in AI-driven decision-making.

By combining robust, scalable infrastructure—enabled through solutions like colocation—with a proactive, responsible approach to AI governance, financial services firms can harness AI in ways that are not only innovative but also compliant, resilient, and aligned with long-term business objectives.

Unlocking pinnacle performance with colocation

Colocation facilities enable financial services firms to achieve proximity to market data feeds and exchange connectivity, cloud on-ramps, and network service providers. Thereby reducing latency and optimizing executional trading speeds, operational efficiencies, and workflow connections. The benefits of colocation extend to:

Enhanced performance: Financial institutions can deploy their infrastructure in proximity to key data sources and markets, reducing latency and improving overall performance.
Operational resilience: Access to robust infrastructure and redundancy frameworks ensures high availability and minimizes the risk of downtime.
Access to ecosystem: Enables connection to dense ecosystems of network and cloud service providers, facilitating data exchange and collaboration.
Security and compliance: Colocation provides secure and compliant environments, often designed to meet—or beat—the highest security, efficiency, and performance standards.
Supporting high-density workloads: Colocation facilities are equipped to handle the power and cooling demands of AI and high-performance computing.

To successfully colocate, financial services companies should first identify their business locations, users, and applications. Our recent survey found that 79% of financial services companies are tying a data location strategy to their AI roadmaps. AI strategy success is shifting towards distributed inference, requiring low-latency for real-time decision making.

Powering financial services innovation: the critical role of colocation