Cloud computing comes of age
For some years now, banks have been grappling with the idea of cloud.
A bit like Big Data, ‘cloud’ is this amorphic term that offers a panacea of solutions and nothing specific.
This is not actually true, but the wide-ranging breadth of cloud and few and far between examples of depth, make it a term that does not sit well with most in the financial markets.
For those who are uninitiated it means outsourcing your data or losing control, and hence it is resisted heavily; for others, it means agility and the ability to react to any processing needs; whilst for a few, it means saving huge amounts of cost on infrastructure and processing.
The core challenge is defining cloud, as few have.
We said this five years ago, when the Financial Services Club produced its first survey on the use of cloud in banking and I would still say it today, as I’ve seen little firm definition of cloud in banking.
This is why, for most CIOs, mission-critical operations are viewed as being critical to run internally, and they are reluctant to exploit the use of external platform and infrastructure for such operations in case they go wrong.
Who would be accountable? What is the reputational risk? How would the business recover?
This is why most cloud usage in banks is for non-mission critical processing, such as for website services or credit risk checks, rather than for core payments or trade processing services.
That may change however for three reasons: regulators, competition and vendors.
Regulators will change the game as they are starting to understand how cloud can help banks deal with data, business continuity and volume peaks.
For example, in July 2013, the Dutch banking regulator De Nederlandsche Bank (DNB) approved the use of the Amazon Web Services (AWS) for all financial operations such as websites, mobile applications, retail banking platforms, high-performance computing, and credit risk analysis solutions.
Similarly, and one of my favourite stories, is the Commonwealth Bank of Australia CBA) – subject of yesterday’s Heartbleed amuse bouche – who are spending three times less on IT infrastructure than they were before moving to cloud. The bank was previously consuming “about 75 per cent of our IT budget on infrastructure, it is now down to 26 per cent.”
But that wasn’t easy. In order to get the approval, the bank’s CIO found the Executive Committee resistant and it was only after he gained approval for the plans from the regulator that the bank decided to move ahead.
A second factor driving cloud take-up is competition. New entrants such as Metro Bank in the UK, Fidor Bank in Germany and Moven in the USA, are all using cloud to build their business models as this reduces the cost of entry immensely.
Cue shameless but interesting plug for Microsoft Dynamics from Metro Bank:
Instead of building some huge monolithic fixed cost overhead, the new start-ups are nimble from day one. This is easily demonstrated by the Currency Cloud for global money transfers or Zopa for P2P lending, where demands can spike and double year-on-year, and the business can respond.
Finally, vendors are becoming more vertical. Most cloud services are moving from generic CRM or infrastructure to being specifically aligned to the needs of the industry. That is why we are seeing pharma firms growing, bank specific solutions being deployed and more and more focus upon the straight-through process rather than the idea of a generic cloud offer.
For all these reasons, this is why a better and deeper defined cloud ecosystem is starting to take off and the reason why Gartner (who?) predict that more than 60 percent of banks will process the majority of their transactions in the cloud by 2016.
I actually don’t believe that last number.
It’s too high, as most banks are still reluctant to use cloud for core payments processing services, but I do believe that cloud is finally coming of age in the banking industry.
That is purely because it has moved from this massive blob of as-a-service, to being specific to the industry’s needs and objectives.
About time …
Source Financial Services Club by Chris Skinner