Banking has been one of the slowest industries to migrate core processing to the cloud. There is no doubt that the few cloud providers that designed their businesses purely for the cloud have sophisticated, complete, and secure offerings, so why should banks consider using public cloud services?
Cost reduction is always given as the number one reason to switch to the cloud, and there are plenty of business cases that prove that to be true. A prime example is being able to close data centers and reduce headcount required to support IT infrastructure. There is also reducing the capital tied up by IT and deploying it in a more effective way for the business.
The ability to flex and pay for only the resources that are consumed, whether that’s storage, memory, or processor power, is a significant benefit for banks, as all on-premises banks have very large quantities of redundant capacity, both for operational and disaster recovery purposes.
As a simple example, the ATM network needs to support peak volumes. In the UK this is typically around 1:10 p.m. on Christmas Eve, when there is a huge spike in the number of people withdrawing cash for the Christmas holiday. This capacity is not only required in the operational system but also in the disaster recovery system, should failover be required. Customers will certainly remember banks that weren’t able to dispense cash on Christmas Eve. For the rest of the year, much of that capacity will remain idle with maintenance bills and licences still being charged.
In contrast, PayPal has nothing to fear from Black Friday or Amazon Prime Day, when enormous spikes are experienced. PayPal uses public cloud services and only pays for the volumes that are used and only when they actually used it.
Public cloud providers have numbers of data centers and nodes that banks simply cannot afford. They have the networks and dark fiber because they need them to provide their service. Because providing a resilient service is critical to staying in business and because their businesses were created and designed from day one in the cloud, they have the advantage over those that started from an on-premises mindset and moved to public cloud.
Amazon, Google, and Facebook are rarely unavailable. Public cloud providers do not send notes to their customers saying that their service will be unavailable for maintenance over several weekends, like banks do.
Banks are under constant daily attack from hackers trying to break through their security and steal customer data or hold banks ransom. Banks can and have been breached. However, providers of cloud services whose sole business is the provision of secure services to customers have much deeper pockets to hire the best and to invest in providing the most secure identity and access management systems. Because their systems were designed for the cloud from day one, and they employ the smartest technical people with the same mindsets as the hackers, they have proved in many respects to be far more secure than on-premises services. If they weren’t, why would they be used by the security services?
With increasing mobility of both customers and employees, being able to access systems from anywhere in the world on any device at any time is increasingly demanded. A public cloud solution makes this far easier than an on-premises solution.
By moving to a standard public cloud architecture, the overall IT architecture is simplified. Most banks have grown over time, as has their banking architecture, which has led to a heterogeneous architecture made up of a mix of hardware and software of different ages that must be integrated.
One often expressed concern has been that regulators would not approve banks using the public cloud. However that is not correct – Monzo is an example of a challenger bank that is running entirely in the public cloud.
Even in more conservative countries, such as the Kingdom of Saudi Arabia, the central bank (the Saudi Arabian Monetary Agency) has approved the use of the public cloud by banks. Not only that but central banks and regulatory bodies such as FINRA are big users of public cloud, as it gives them the ability to work on large datasets, structured and unstructured data, supercomputing, and analytics tools to carry out tasks such as identifying fraud and suspicious trading in real-time, only paying for it when they need it.
Designed for Mode 2 Development
As increasingly banks look to innovate using Mode 2 Development methods, setting up and managing environments and tools to manage this is much easier when using a public cloud provider. For providers that have designed their businesses for the cloud from the start, Mode 2 has always been the market they have served. All the exponential organizations started out using Mode 2. It is far easier for a Mode 2 cloud infrastructure provider to move to Mode 1 (traditional development) than it is for a Mode 1 organization to move to the provision of Mode 2 cloud services.
Access to innovation
The large-scale public cloud providers have been where all the innovation around new technologies has been taking place, whether it is artificial intelligence (Google DeepMind), voice (Amazon’s Alexa, Microsoft’s Cortana), image recognition (Amazon X-Ray), autonomous vehicles (Google Waymo), augmented reality (Google Tango, Pokemon Go), or gaming. These are the technologies that banks and other financial services providers need to embrace if they are to be relevant and able to compete.
Public cloud is ready to enable the future of banking. The challenge for banks is to embrace and exploit what public cloud offers.
For more on why you need to take advantage of cloud security, see The Future of Cybersecurity: Trust as Competitive Advantage.