2. Cloud banking: a grotesque fantasy or an inevitable future
2
CLOUD BANKING: A GROTESQUE FANTASY OR AN INEVITABLE FUTURE
Have you heard about cloud technologies? D’you understand
the principles of their functioning? D’you have an idea of
how the banking transactions can be carried out in a totally
virtual space as an ordinary banker sees it in practice?
To cut a long story short and without abstruse phrases, the
cloud technologies (in common referred to as “cloud”) are a
scope of computing processes executed within the
accessible virtual pool of scalable resources (data networks,
servers, storages, web-applications and services, both in conjunction or separately) and operated
through Internet enabled devices promptly delivered for or released from usage with minimum of
operational costs or requests to cloud provider. First of all, the attractiveness of cloud computing lies
in the fact that a user (e.g. a company) noticeably reduces costs for the existing IT infrastructure (CapEx
& OpEx) and enables himself to flexibly react to constant changes in own computing power thanks to
productive elasticity of cloud services. In other words, you pay as much as you use without staying
attached to limitations or excesses of your own datacenter.
Sounds trivial and no revolution ahead? Then imagine client accounts’ processing and
corporate data warehouse in cloud. IT IS THE CLOUD BANKING! Now comes the fun…
April 2015, London, UK. As a delegate, I was lucky to participate in international Cloud Banking
Europe conference dedicated to the perspectives, structure, advantages and risks of cloud tech’
implementation in banking sector.1 In particular, the delegates of major European banks (HSBC, BBVA,
Banco Sabadell, DNB, ABN AMRO, UniCredit, Norvik Bank), representatives of heavyweight IT market
players (HP, IBM, Microsoft, Oracle, Google, Fujitsu and others), members of the Big Four audit
companies (PwC, Deloitte), as well as SWIFT and, of course, state financial regulators (UK, Netherlands)
analyzed in details and through sharing ideas discussed most of the aspects of realization of cloud
banking in practical activity, the key ones among which are:
- What is the commercial profit of company’s IT migration to the cloud?
- What kind of platform will it be?
- How to ensure the data security?
- How to “fit in” the existing regulations and how to
motivate the regulator to become coefficient to
your changing business?
Such an event is rather non-trivial, taking into account that in 2015 the alike conferences are
going to take place in three more continental regions: North America, MENA and Asia. New
technologies and the growing need for extension, diversification of banking products and cutting terms
for reacting to clients’ needs dictate fashion for revolutionary decisions and courageous steps. The
topicality of cloud computing and development of digital technologies in general is justified by
objective reality in the modern financial world.
1 www.cloudbankingworldseries.com
i
$26
billion
in 2015
Anticipated
spending by
financial-services
firms on the cloud
3. Cloud banking: a grotesque fantasy or an inevitable future
3
Large-scale digital tech integration into business is not a tribute to trends or an innovative idea of a
single project manager. Today it is an evident requirement from clients in most Western European,
North American and Asian countries:
2
2 Accenture 2014 Digital Banking Customer Survey Millennial’s & Money.
CUSTOMER ENGAGEMENT
Needs Wants Outsomes
- Enhanced Online
banking;
- Secure, simple
device access
- Lifestyle financial
customization;
- Personal banking
and experiences
- Personalized products
and services;
- Simplified customer
experience;
- Predictive services and
analytics;
- Ease of engagement
and interaction
Are constantly connected:
94% - are active users of online
banking;
72% - are active users of mobile
banking;
92% - are active users of social
media
Have higher expectations of
omnichannel distribution:
67% - feel the traditional and digital
experience they receive from
their bank is somewhat or not
at all seamless (compared to
45% for those over 55)
Are not as tied to the traditional
branch experience:
39% - would consider using a
branchless digital bank
(compared to just 16% for
those over 55)
Want to bank on their time :
56% - are interested in having a video
chat with a bank representative
by accessing a link on their bank’s
website, mobile or tablet
application (compared to 23% for
those over 55)
Embrace new entrants:
72% - would be likely to bank with
non-financial services
companies with which they
do business (compared to
27% for those over 55)
Want help with managing
their finances:
67% - are interested in their bank
providing tools and services
which help them create and
monitor a budget (compared
to 31% for those over 55)
Are in touch with their spending:
66% - follow a budget (compared
to 36% for those over 55)
Expect their bank to be proactive:
58% - are interested in their bank
proactively recommending
products or services
(compared to 46% for those
over 55)
Are seeking advice through
emerging channels:
22% - look for financial advice via
social media (compared to
3% for those over 55)
WHAT CLIENTS THINK
Outcomes Wants Needs
- Great customer experience;
- Increased digital banking
adoption;
- Deeper offerings and
services;
- Secure customer trust &
loyalty
- Standard products
with personalization;
- Greater wallet share
of customers
- Operational cost
optimization;
- Secure, validated
customer access
Business growth
5. Cloud banking: a grotesque fantasy or an inevitable future
5
So why is the cloud banking so luring and what makes it be the future?
First, you need to understand the conception of Cloud, its types, advantages and
shortcomings, and, of course, how the cloud services facilitate financial institutions to strengthen their
presence on the market expanding the range of products and brand new opportunities for their clients.
But to understand it one must evaluate how Cloud will fit into the existing banking landscape, its
traditions and regulations. You cannot but recognize that the biggest development of recent decades
in sphere of financial services is the complete transformation and digitalization of retail
and commercial banking. The full dawn of the digital era has meant that banks should not only have
their brands visible through online adverts and pop-up windows in browsers, but on social media too
and, of course, through the provision of online banking.
Emphasis is on the digitization of products and services,
providing totally new customer experiences which allow the
customer to access various banking services anywhere on the
globe through any digital device at any time. The same level
of importance is about the need to have an open
channel of communication with customers by leveraging
native mobile solutions, which allow the bank to push key
information in real time 24x7.
Moreover, a bank must create more context-aware solutions by analyzing the typical actions
executed by their customers and patterns of use, all the while making them simpler (user friendly) and
faster. Additionally, active retail and commercial banks are embracing more and more new digital
payment systems and digital wallets, which are so trivial to the Western world.
According to a recent research from Gartner titled “Agenda Overview for Banking and
Investment Services, 2014” those trends should be segmented into the following three areas:5
5 Nuno Godinho, General Manager Software, Europe / Software CTO, Europe at GE Healthcare
i
≥$10
mln.
per year
Annual investment
in technologies of
one in five financial
institutions
6. Cloud banking: a grotesque fantasy or an inevitable future
6
Challenges
Having learned the three biggest trend areas it is vitally important to understand the
challenges that are associated with achieving them. Some of these challenges are typical for most of
CIO’s while embracing a large transformation program like this, and we can name the challenges:
- How to capitalize this investment?
- Which technologies will allow to intensify presence of business on the market and reach?
- How will it change the business and what is my bank going to look like in the future?
- How do we leverage our traditional legacy IT infrastructure in the new age?
- How to provide my information on my activity in order to improve business agility?
- What will my transactions look like in the future?
- How will this work in relation to current regulatory compliance?
Beside the typical challenges there exist some different ones, which have emerged because
of the scales and demands of financial market. Nonetheless, nowadays the most severe competitions
take place not between traditional banking institutions of similar size or market capitalization rate, but
in fact between the new ones who has armed their businesses
with modern digital tech upgrades, and without the
“baggage” of legacy systems or having passed through several
technological transformations. Such newcomers posses
agility, mobility and privileges of new techs. They leverage IT
costs with increased reach due to new and disruptive ways of
thinking and amplified decision making. These guys will
challenge the financial giants built on basics of old classical business model, so that they tend to
succeed in this struggle for the market share. It soon will be a crucial concern for the established old-
timer banks regarding their dominating passivity in respect of integration with new cloud solutions.
Among other things, the market itself is ready to such revolutionary alterations as the financial
crisis has had a significant impact on banking sphere having formed growing needs in:
i With the
introduction of
mobile banking cloud
demand almost
doubled in 2013
Better
market
agility
Increased
regulation
Cost reduction
and financial
performance
Maximal
customer
focus
7. Cloud banking: a grotesque fantasy or an inevitable future
7
And what can the Cloud offer to satisfy the above-mentioned needs? Lots of privileges, e.g.:
It is the Cloud that helps both incumbent and new players to make the best use of those
advantages since it allows an agile, scalable and cost effective way to embrace this
huge transformation affecting the banking landscape. In order to truly be able to understand this
solution better, its strengths and weaknesses, I suggest you to consider description of basic elements
of the Cloud as a technological product.
In a varying degree we all have heard about the Cloud, however for simplicity let’s define it as
“Internet-based computing in which huge groups of remote servers and storages are networked into a
massive virtual network, therefore allowing to receive a centralized data warehouse, online access to
computer services or resources”. In substance, the Cloud is a virtual IT infrastructure.
Commonly the Cloud is categorized by two models: deployment and service.
NEW
OPPORTUNITIES
Maximum agility of business
Cloud scales up & down quickly due to
current demands of the company
Cloud Services
provisioned and
de-provisioned in
minutes not days
Regulations & Security
Rules will be adapted to demands of
market and requests of banks
Data encrypted,
thus protected
Cloud providers
to be certified
Good customer
experience stimulates
market growth
Application updates
per year
4
52
120
2010 2015 2020
IT costs optimization
Before Cloud
First year after
Cloud
IT expenses of an average bank
(% of revenue)
5,2%
3,2%
DEPLOYMENT
MODEL
Частное
облако
ап
Private cloud
An infrastructure operated solely for a single organization with
numerous consumers (e.g. structural units), possibly as well operated
by its clients or contractors. It can reside in the ownership,
management and operation of either the organization or a third party
(or in combination), and may be physically located both under and
out of jurisdiction of the owner.
Community cloud
An infrastructure operated by a community of costumers at organizations
with common tasks, targets (e.g. missions, security requirements, policies,
compliance with some prescriptions or needs). It can reside in co-operative
(joint) ownership, management and operation of one or more member
organizations of the community or a third party, and it may physically exist
both under and out of jurisdiction of the owner.
Hybrid cloud
A combination of several diverse cloud
infrastructures (private, public,
community), which keep existing as
separated objects, but tied together by
standardized or private data transmission
technologies and applications (e.g. short-
time usage of resources of public cloud
structures for peak-load balancing
between clouds).
Public cloud
An infrastructure for free use
by general public with no
restrictions on the right of
access to its certain resources
or information.
Physically located under
jurisdiction of the owner —
cloud service provider.
8. Cloud banking: a grotesque fantasy or an inevitable future
8
Now that we understand the Cloud and its classification we can have a look in more detail at
its prospects and viability for financial services’ market, as well as refute some of the existing incorrect
perceptions about the cloud computing.
There is a stereotype that the Cloud is that it is unsecure and not usable for the banking and
investment sectors or any other which have strict compliance guidelines to be followed. As practical
experience indicates, this is definitely not the case, and more and more Banks and other highly
regulated sectors have been investing in the Cloud over the last few years and did not experience these
issues. It is not because they were not regulated by their national regulators but due to their judicious
and methodical approach to understanding the legal norms and the path they need to go through
leveraging the Cloud with benefits from it and avoiding its concomitant risks. Let’s mention a few
noticeable examples of triumph of the Cloud:6
- In 2010, Metro Bank outsourced their entire IT infrastructure to a third party leveraging a
Private Cloud IaaS offering;7
- Fortis Investments (member of BNP Paribas group) leverages benefits of Public Cloud SaaS
offering having deployed salesforce.com to 167 sales professionals in 31 countries;8
- Gneis Global Services, a subsidiary IT Organization of the Spanish bank Bankinter, which in
early 2013 leveraged the Public Cloud PaaS;9
6 Nuno Godinho, General Manager Software, Europe / Software CTO, Europe at GE Healthcare
7 www.computing.co.uk/ctg/news/1863530/metro-bank-outsources-entire-it-infrastructure-niu-solutions
8 www.cloudcasestudies.com/case_Fortis_Investments.html
9 www.microsoft.com/casestudies/Microsoft-Azure/Gneis-Global-Services/Global-Bank-Uses-Cloud-Solution-to-Quickly-Scale-Document-Management-Tool-and-Cut-Costs/710000004433
SERVICE
MODEL
SaaS
PaaS
IaaS
Software as a Service
A model where a customer can leverage the provider’s application
software running in cloud environment and accessible from various client
devices or through a thin client, e.g. a browser or an application’s interface.
A cloud provider is the one who operates and manages the cloud’s
virtual infrastructure, incl. network, servers, operational systems, virtual
storages or even individual preferences of an application (except a limited
set of custom application’s configuration settings).
Infrastructure as a Service
A model where the cloud environment is used for
manual managing the resources of processing, storage,
networks and other fundamental computing powers. For
example, a customer is able to install and launch random
software, which may include operational systems,
platform and application software.
A customer can operate OS’s, virtual storages and
installed software, as well as to have limited control over
a set of available network services (e.g. firewalls, DNS). A
cloud provider operates and manages the basic physical
and virtual infrastructures of the Cloud, incl. servers, types
of OS’s used, storages etc.
Platform as a Service
A model where a customer leverages the cloud
environment for allocation of basic software for subsequent
placement of new or existing applications there (own SW or
designed by a request or acquired replicated applications).
Such platforms include creation tools for designing, testing
and running the application software (namely database
management system, middleware, environments for
runtime languages) provided by the cloud provider.
Control and management over the basic physical and
virtual infrastructures of the Cloud, incl. network, servers,
operational systems, virtual storages are carried out by the
cloud provider, except the newly designed or installed
applications and, possibly, environment’s (platform’s)
configurations settings.
9. Cloud banking: a grotesque fantasy or an inevitable future
9
- Reserve Bank of Australia (original name “Commonwealth Bank of Australia”) gladly started
leveraging the Public Cloud IaaS in 2012.10
Cloud model of IT infrastructure at large banks is no more a fairy-tale but an accomplished fact (or
almost such) for a number of respected financial institutions in Europe:
11
12 13
14
10 www.assets1.csc.com/cloud/downloads/SM_ForresterCaseStudy_CBA.pdf
11 www.reuters.com/article/2014/12/01/us-ibm-abn-amro-bank-idUSKCN0JF25C20141201
12 www.bbc.com/news/business-16486796
13 www.elconfidencialdigital.com/dinero/BBVA-banqueros-Google-Amazon-clientes_0_2422557742.html
14 www.globalservices.bt.com/uk/en/casestudy/banco_sabadell
IBM has signed a 10-year, multi-billion dollar deal to provide computer infrastructure
services to ABN AMRO, one of the biggest Dutch banks, thus lending full support in
implementing a private cloud with consequent bank’s IT architecturle’s standardization and
simplification (everything from portable devices to data centre).
Through a phased optimization and transformation of IT into cloud infrastructure, ABN
AMRO is aimed to improve operational efficiency of its computing resources, improve
quality of services for clients and offer them new and innovative products to make them
correspond with customers’ constantly growing demand in digital solutions.
More than 100 000 employees of Spanish BBVA enjoy Google Apps since 2013: Gmail
with Google Chat, Google Calendar, Google Docs, Google Groups, Google Sites and Google
Video. Corporate email has gone cloud. Documents located on common web source can be
amended simultaneously from different parts of the world with no need to save their
numerous versions. BBVA's data circulates in Cloud. Surely the bank strictly follows the
regulations on storing and accessing the information to the same extent as it is done with
traditional data centres.
Meantime, BBVA tightly collaborates with Google and Amazon giants to develop the
range of its virtual products sold in Cloud, and among which there are the BBVA Compass
mobile banking and the BBVA Wallet.
Banco Sabadell is the fourth largest financial services group in Spain. As part of its
commitment to customer service, the group needed to unify its existing contact centre
infrastructure to more closely integrate client-facing operations across its domestic and
global customer base. It would need to transform primarily voice-based and geographically
disparate call centres into a single virtual multichannel service capable of managing voice,
email, web chat and social networking interactions, all at once.
BT Advise Contact (the contact centre consultancy arm of BT Global Services) proposed a
comprehensive BT Cloud Contact solution. This included automatic call distribution (ACD),
interactive voice response (IVR), management of voice, email, and social networking
contacts, intelligent routing, computer telephony integration (CTI), multichannel customer
relationship management (CRM), voice recording and workforce management (WFM).
10. Cloud banking: a grotesque fantasy or an inevitable future
10
15
16
17
18
15 www.eweek.com/cloud/slideshows/financial-services-firms-bank-on-the-cloud.html
16 www.computerweekly.com/news/2240193989/European-banking-firm-UniCredit-to-introduce-cloud-in-its-datacentres
17 www.bankingtech.com/178102/citibank-signs-up-for-sap-cloud-based-corporate-to-bank-solution/
18 www.db.com/medien/en/content/5060_5124.htm
German financial giant Allianz shall consolidate and integrate its networking architecture
and global datacenters into a cloud infrastructure called Allianz Private Cloud. With the
assistance of IBM, the leading insurance company plans to reduce the total number of its
active data centres from 140 to only 6.
Banking heavyweight player UniCredit together with IBM have concluded a multi-billion
contract on creation of this financial group's cloud infrastructure on basis of IBM
datacenters.
This deal is aimed to achieve cloud transformation of UniCredit IT infrastructure at all
entities of this banking group in Europe to enhance the effectiveness and agility of services
for the clients, as well as to better predict the market trends, optimize costs and provide
customers with modern innovative products.
Furthermore, this 10-year deal envisages creating a joint venture by its participants to
provide cloud services to other European commercial institutions.
SAP and Citi Bank came to agreement on the subject of a new cloud platform designed to
simplify the interaction between corporate customers and the biggest worldwide banking
institutions. SAP Financial Services Network (FSN) is a cloud solution covering such
corporate transactions as payments, money transfers and reconciliation of funds. FSN
automatically processes payment operations of a financial institutions, collates budgetary
and analytical indicators, which in turn removes traditional paper statements, acts, reports
etc.
This project has been in development for already several years and successfully tested by
such reputable institutions as Bank of America, Merrill Lynch, Deutsche Bank, Nordea, RBS
and Standard Chartered Asia Pacific. Citi has come to be the first bank which concluded a
commercial agreement on integration of the said platform and it actively prepares its
infrastructure to FSN's productive usage.
Deutsche Bank and HP synchronously announced a ten-year, multibillion dollar
agreement that will further modernize the Bank’s global IT environment and aims to
significantly reduce related IT infrastructure costs. Under the terms of the agreement,
which mainly covers wholesale banking IT infrastructure, HP will provide dedicated data
centre services on demand including storage, platform and hosting.
Deutsche Bank will retain activities such as IT architecture, application development and
information security.
As part of a wider IT transformation programme, Deutsche Bank will upgrade and reduce
the number of its IT applications, move them on to the HP platform and enhance its own
processes for providing technology support to its operations.
11. Cloud banking: a grotesque fantasy or an inevitable future
11
You will ask: What motivates executives of such large financial institutions to make a decision
to actually put their business “in hands” of risky virtual construction guided by a third party?
NTT Communications, which (without unnecessary epithets) is the biggest networked
telecommunication company on the globe, has recently conducted a survey among CIO’s, CEO’s, COO’s
of known brands, owners of private businesses regarding their expectations about the Cloud.
Considering 100% as total number of the questioned participants, then the list of benefits of the Cloud
for business should be displayed as follows:19
Of course, the results seem not so impressive to convince you at first sight that the future of
banking is integrally attached to the cloud computing. However, they show us a strong trend, which
soon will “infect” the minds of most self-respecting managers.
Let’s have a look at the key advantages of the Cloud, whose potential will boost up the banking
segment to make its new evolutionary leap:20 21
19 www.eu.ntt.com/en/services/voice-and-video-communications/arcstar-ucaas/industry-research.html
20 www.sapient.com/content/dam/sapient/sapientglobalmarkets/pdf/thought-leadership/GM_Cloud_Computing.pdf
21 www.business.qld.gov.au/business/running/technology-for-business/cloud-computing-business/cloud-computing-benefits
0% 10% 20% 30% 40% 50% 60% 70%
Transforming business processes
Reducing IT staff requirements
Improving application availability and their
performance
Faster deployment times
Improving ease of management
Increasing scalability of IT infrastructure
Lowering costs (CapEx & OpEx)
Faster access to new applications & functionality
Enabling 24x7 access to applications
33%
39%
44%
47%
50%
50%
56%
56%
64%
% OF RESPONDENTS THINK THAT THE CLOUD...
12. Cloud banking: a grotesque fantasy or an inevitable future
12
Cost savings. ОpЕx. Migration of IT infrastructure to the Cloud significantly reduces
management and maintenance costs related to your systems. There is no more need to regularly
purchase and prolong post-guarantee support or first line technical maintenance for software or
hardware. You only have to pay for a ready-to-use platform, which is supported by provider, and you
only cover monthly or quarterly invoices.
СapЕx. Instead of purchasing expensive software
systems with their constantly renewed maintenance,
server clusters, disk racks, cooling systems for
datacenters etc. you only use those resources your
provider already has. Issues of licensing and technical
support will be the provider’s headache, not yours.
HR. You gain high performance of your systems with
smaller servicing staff for them. Moreover, it is possible
to cut expenses for employment of non-IT staff: Project Office, Procurement specialists or even Front
Office managers (in cases when a second stage of cloud migration is achieved, i.e. virtualization of not
only IT activities and resources, but the business in whole).
Scalability. Your IT infrastructure shall be elastic. You’ll leverage it (its computing powers, the
sizes of data warehouses, service resources etc.) through extension or shrinking just depending on the
dynamics of your business growth and its current demands. Provider is the one who will be responsible
for execution of all the upgrades and transformations needed, and you go free with your time to
concentrate on your business activity.
When cloud solutions are correctly designed
and implemented into the company’s business
structure, they facilitate it to fully meet the needs of
users and rapidly scale the existing computing
resources (CPU, RAM or IP’s), thus depriving business
users and IT specialists from engineering the systems
for peak loads.
To stay compliant with today’s regulations
around risk management processes, financial services
firms need multiple times the computing power for risk modeling than they did before the financial
crisis of 2008-09. That is why companies are turning to cloud-based grid solutions. Normally, to run
these risk simulations and calculate analytics indicators,
computing power is heavily required only at certain
times of a day, leaving resources idle for the rest of the
time. If shared computing resources could be made
available to such processes based on when they are run
and the data loaded, it could lead to 9 of 10 instances of
almost zero unutilized computing power at all.
At the same time, companies can tackle the challenges of
security and data privacy by creating a hybrid cloud
where sensitive data can reside on a private cloud and
computing power can be available on a public cloud. These private and public clouds can be combined
into a virtual private network to create a single scalable hybrid cloud.
i
77%
yes
European banks’ CIO’s surveyed:
Will my product testing cycle be
reduced through the leveraging of
cloud-based applications?
3%
no
20%
unsure
13. Cloud banking: a grotesque fantasy or an inevitable future
13
Data virtualization. Virtualization is not a new conception. Actually, extraction,
transformation and loading (ETL)-based business intelligence systems have been around for a while.
Data virtualization is the integration of data from multiple and disparate sources across the enterprise
or external sources for the on-demand consumption by a wide range of specialized applications in a
virtualized manner.
For example, the Dodd-Frank Act (Dodd-Frank Wall
Street Reform and Consumer Protection Act, 2010)
mandates a 360° view of risk and performance
across all asset classes and portfolios within a
company, enforces more compliance and regulatory
reporting for financial services companies, and
warrants a way to value positions and calculate
variation margins for OTC derivatives collateral
posting. This obligates companies to have a data
virtualization strategy in place, which can be used to provide a single source of reference data, such as
security master data, single view of positions and holdings, book and counterparty data, etc.22
In addition, risk and analytics calculations rely on many different types and sources of data,
including relational, semi-structured XML, dimensional and the new Big Data types. Leveraging large
volumes of data from such sources makes query performance a critical success factor. When the data
is combined with historical data from other commercial sources, it can enable those companies to
identify computing powers consumption patterns and forecast for the future accordingly. Combining
such disparate data from public and private domains is a challenge. Therefore, accessing that data from
a single virtual source would drive scores of data consolidation.
Business continuity. Effective protection of data and systems of your bank is an essential
component in planning your business continuity actions. Accidents, natural or man-made disasters,
power outages, malfunctions – those things are not a trouble in case your data circulates through the
Cloud and is stored there. If the said accidents occur you can always rapidly restore access to your data,
thus allowing you to conduct business almost continuously and minimizing downtime and loss of
productivity.
Technology Standardization. Frequently different groups of people within one company have
different approaches because of a lack of standardization in terms of technology, architecture and
services. Of course, the solutions might be similar by nature, but application environments, with
individual components and configurations, are considerably different. Standardizing these technology
and architecture approaches would reduce duplication of effort. Additionally, different units of cloud
computing infrastructure, such as virtual machine images, architecture patterns and templates, would
allow teams to create standardized environments. A cloud also enforces development lifecycle
standardization across different teams—once they start accessing it through the same interfaces.
22 www.cftc.gov/lawregulation/doddfrankact/index.htm
14. Cloud banking: a grotesque fantasy or an inevitable future
14
Mobility. Majority of today’s business users want to access
the currently updated risk and analytics reports performance
attribution metrics and trading summaries while they are on the
move 24х7. Theirs minds see it essential to enjoy accessing their
emails on smart phones and tablets anywhere and anytime. Likewise,
they want similar interfaces for financial services-specific
applications. And since the Cloud enables users to access the systems
and infrastructure using a web browser or customized clients
regardless of location and time, development of such interfaces has
started taking shape. Some financial services providers have ventured
into this area by developing iPhone, Android and iPad interfaces for their account management
applications, CRM tools and data research and reporting applications.
Business efficiency. Thanks to cloud computing, the time to
market can be reduced from months to weeks or days,
depending on the specificity and level of development of a
bank. A served by a third party, modeled on demand of
bank, real-time monitored Cloud:
- eliminates time gaps usually necessary for procurement
procedures (tendering, contracting, payments), because
there is no more need to regularly purchase new software, equipment, renew the technical and vendor
support, updates for licenses etc.;
- removes delays caused by adjustment of the budget settings and their approvals;
- expedites computing power for running the existing applications when it is needed to handle
peak loads and adapt to their levels;
- eliminates the upfront capital and time investment for procuring hardware or software for
proof of concept work or rapid application designing or the IT infrastructure development in general.
The shorter is your path from an idea to a done product, the more nimble you are compared
to your competitors, and the more successful your business is.
Effective interaction. Cooperation in cloud gives your business an opportunity to
communicate and share information with greater ease
and out of traditional methods. For example, you work on
a certain project in various geographic locations, and your
colleagues or partners require rapid access to those files
you currently deal with. The Cloud helps to access the
same documents at any time and from anywhere where
the Internet is available. At the same time, you are able
to leverage the cloud model for exchange of sensitive
data with colleagues (e.g. easy and safe work with
accounting records, financial reports etc. together with
your accountants and financial analytics).
i - Today it is not the biggest
fish which survives,
but the fastest one.
Chris Hoedt,
ABN AMRO Bank
15. Cloud banking: a grotesque fantasy or an inevitable future
15
Flexible methods of work. Employees who work in cloud environment are more agile and
productive in their work. For example, they have the ability to access data from home, on holidays, or
via the commute to and from work (providing you have an Internet connection). If they need access to
their data while they are off-site, they can connect to their virtual office, quickly and easily.
Access to updates. Access to automatic updates for your IT requirements may be included in
your service fee. Depending on policies and services of your cloud computing service provider, your
systems will be regularly updated as per the algorithm you require. Beside the ordinary regular updates
of software, you become able to purchase upgrades for your applications, as well as for provider’s
server equipment servicing your IT infrastructure.
Experts identify seven key elements of the Cloud’s value for business:
Now let’s return to frequently discussed misconceptions about the Cloud. In addition to
security concerns (they will be a subject of deeper assessment in my following report), there exists
another cliché. It tells us that the cloud architecture is inapplicable to small business because of a too
serious risk to lose while venturing all corporate funds available and without a solid cash "cushion" for
backup in case of failed "experiments" with cloud computing.
In reality, cloud technologies constitute a serious threat for the heavyweight established
players which are accustomed to traditional business model and tightly attached to their much
cherished datacenters. Why? It’s so because the Cloud grants significant edge to the new and smaller
organizations who are not burdened with expensive, massive and energy-extensive data centers and
their supportive infrastructures. Such players will quickly enter the market and, by leveraging the
Cloud, dynamically involving new customers and creating a critical mass of them, which will surely
become a direct threat to the liquidity of "old-timers" in such an unequal struggle with dexterous
“novices”.
Economic elements:
- pay-per-use;
- pay-per-upgrade;
- no more CapEx
Architectural elements:
Simple abstract environment
for research and development.
Strategic elements:
Focus on core business
activities. All the rest is care of
provider.
16. Cloud banking: a grotesque fantasy or an inevitable future
16
Those institutions using the benefits of Cloud are
not only unbound by their legacy systems, so
hulking and capricious in servicing, but they can
also within hours (in some cases even in minutes)
scale their IT infrastructure to satisfy quickly
changing business needs. Moreover, it is the
Cloud, which creates a smoothly running virtual
environment for them where the companies may
offer their clients newer and more innovative
products. As you can notice it is a true menace
for traditional banking institutions, and
consequently it comes to be not only undesirable
to ignore the opportunities from the cloud tech, but in the short run it’s gonna be deadly.
From a viability perspectives of cloud tech in
financial services’ sphere it is important to understand that
even Public Cloud (the least functionally limited one) is not
as unsecure as most people think. And that is cause of
multi-billion investments in datacenters made by vendors
today, like the $8.6 billion investment Microsoft made in
2011 for Cloud R&D (Research and Development) and
continues to extend financing.23 Cannot but mention the $1.2 billion investment made by IBM
Corporation into its HW&SW infrastructure to increase the functionality of their own solutions
distributed through the company’s public cloud. These numbers demonstrate us how much it is at stake
for the world’s IT giants in regard of cloud computing, as right now Amazon, Microsoft, IBM, VMware
and Oracle invest shocking amounts in forming an extensive network of accredited datacenters, while
maximally adopting them to demands and wishes of every institution, enterprise, businessman in any
industry throughout the majority of countries.
Amazon Web Services (AWS) is a perfect example of the impact of large investments in cloud
solutions, Amazon’s cloud computing business, has revolutionized the way software is created and how
technology startups are formed. After its launch in 2006 and thanks to generous money “injections” by
2015 AWS has reached the level of business liquidity of $5 billion growing roughly 50% a year, and thus
it became the largest public cloud in the world pushing aside the guys from Rackspace, Microsoft,
Google and other world-renowned IT leaders to the backyards:24
23 www.gigaom.com/2011/04/08/microsoft-plans-8-6b-in-cloud-rd-but-where-should-it-go/
24 www.qz.com/388105/amazon-is-about-to-reveal-one-of-its-biggest-secrets-the-size-of-its-cloud-business/
i
$430
billion
in 2014
Worldwide overall IT spend
in financial services globally:
≥$500
billion
in 2020
8%
6%
3%
3%
30%
50%
Global market share of services in Public Cloud
Rackspace
Microsoft
Verizon
IBM
Others
Amazon
Others
17. Cloud banking: a grotesque fantasy or an inevitable future
17
Meanwhile, cloud viability is not only related to the security and compliance of the datacenter
(where the solutions will be running), but as well about the type of data which is stored in them, and
this is a typical concern on public cloud. In order to eliminate concerns one must understand the
compliances and the difference of approach for “Data at Rest”, “Data in Use” and “Data in Motion”,
and also the Data Sovereignty, since those are the criteria which are going to definite if it is usable for
banking or not.25
In other words, any type of Cloud is actually viable for the financial sector as long as those
three stages of the data lifecycle are taken care of. If we now consider that each compliance has
different restrictions to each data stage we will see that our horizons get much wider than we think.
Regarding the Data Sovereignty aspect (a
concept stating that the information processed and
stored in binary digital form is an object for
regulation by the legislation of the country of its
actual allocation) at the Cloud World Forum 2014
John Finch, CIO of the Bank of England advised that
the banking institutions should think twice about
migrating to the Cloud.26 When analyzing his
arguments, one must agree that this is
not about an “all or nothing” approach and that
there are different types of cloud which one can
leverage and choose the best to fit. Perhaps this
means that the best approach is to consider a hybrid
cloud, in which we leverage public cloud for processing data (which means Data in Use and Data in
Motion) and exploit private cloud for Data at Rest. Even in that case we still need to clearly determine
which of the data at rest is really under those constraints, since most of it might not be, therefore
allowing the financial companies to benefit from advantages of cloud technologies in spite of selected
service or deployment models of the Cloud by safe encrypting and anonymizing the data.
25 Nuno Godinho, General Manager Software, Europe / Software CTO, Europe at GE Healthcare
26 www.businesscloudnews.com/2014/06/18/bank-of-england-cio-think-twice-about-cost-security-data-sovereignty-in-the-cloud/
DATA AT REST
Inactive data stored physically
in databases, data warehouses,
spreadsheets, archives, tapes,
off-site back-ups etc.
DATA IN USE
Active data under constant
change stored physically in
databases, data warehouses,
spreadsheets etc.
DATA IN MOTION
Data which is traversing
throughout a network or
temporarily residing in
computer memory to be read
or updated.
18. Cloud banking: a grotesque fantasy or an inevitable future
18
In order for financial institutions to succeed in effective leveraging the Cloud in business and
to achieve the top economic outcome they need to make these few strategic steps, namely:
Summarizing all the above-mentioned, it comes evident that cloud technologies in banking,
as well as in financial services in general, are neither a myth nor a “soap bubble”. They and their
benefits are real. It is only a matter of understanding of different types of Cloud, its structure and the
ways of its efficient realization. Surely, your concerns about data security and sovereignty are
reasonable while these factors play a crucial role for stability of your business. However, they should
not become a strong reason give up the boons of cloud computing, as consequences in nearest
perspective might result in loss of income or business at all. And that is so because the Cloud brings
not only new opportunities, but it is also a great threat to those rejecting it while new players, who
mind modern trends and technological instruments, will be more agile, mobile and aggressive on the
market. This fact aligned with the current industry trends of digital banking, bank operations innovation
and payment reinvention where threat from the likes of Bitcoin creates a big concern for traditional
banks, thereby heavily motivating them to move to the Cloud.
I am sure you’ll give me a smile and mentally answer: There is a sense in it! But we are in
Ukraine. Here and now it is not realizable.
I will not argue with you, you are right. We live in a country, where technologies are delayed
for almost 20 years, where the general infrastructure is like a limp dog, where the banks tend to survive
and are more concerned about their profits at this moment than about the mid-term perspectives and
their IT services’ virtualization. It is the country where the regulator not only avoids assisting financial
institutions in adaptation on new technologies and raising quality of services for clients, but issues
contradictory regulations. It is where the top managers, just like ordinary customers, are not mentally
ready to accept cloud tech and its obvious benefits.
But time does not stand still, as well as the progress.
Technologies can be updated and integrate into
business following a strong will, wish, investments and
involvement of a world-known vendor. No offers in
domestic market? Create demand, and IT giants like
HP, Microsoft, IBM or Google will come themselves
knocking on your door proposing ready-made cloud
solutions.
Design a strategy of cloud
migration for business
Minimize the risks concerning the
data security and sovereignty
Make emphasis on hybrid cloud
as the first stage
Actively lobby interests by
cooperating with the regulator
i
≥60%
by 2016
Amount of banks
worldwide which will
process the majority of
their transactions in the
Cloud (by Gartner).
19. Cloud banking: a grotesque fantasy or an inevitable future
19
D’you think it is impossible to motivate the National Bank to customize the Ukrainian
legislation making it more auspicious and adjutant in migration to the Cloud? Create an ideological
community of banks, which will vigorously lobby for the necessary ideas and their legitimization. It has
been done in such a way for many decades in US, where the state is actually ruled by large corporations
dictating their rules, and not on the contrary.
Still numerous aspects and hardships remain in promoting cloud banking in our country. And
YES, within the next few years we most likely won’t find a 100% cloudy IT infrastructure at a Ukrainian
bank. Nonetheless, the Cloud is an impending inevitability for financial services all around the world.
Thus the first “pioneers” here in Ukraine who try their luck through mastering the cloud concept and
transforming their businesses in accordance with the Cloud’s canons, they will acquire not only all
previously mentioned advantages over their competitors, but also the best offerings from cloud service
providers and well-known vendors. The latters are patiently watching for their moment to enter the
vacant Ukrainian market.
