Poland’s financial services sector weighs cloud’s risks and rewards

Banks and financial services enterprises in Poland are split between strict regulations and security concerns, and cloud’s benefits

Banks and financial services enterprises in Poland considering cloud services are split between strict regulations and security concerns on one hand, and cloud’s benefits and reach in other sectors.

Global finance has been in crisis for several years. In Poland, however, the situation is quite different – the financial sector has noted higher profits than others. In recent years, the profitability ratio for institutions in this sector (net profit in relation to invested equity) varied from 13% to over 20%, according to data from the National Bank of Poland. Meanwhile, the average profitability for a company in Poland is only 8%.

Not surprisingly, cloud service providers consider Poland’s financial sector players as the most likely customers. Their offer is indeed taken into account by the banks, but with caution and deep introspection.

While cloud’s scalability and high compute capacity has been touted as beneficial for the financial sector, there is still a high level of distrust about cloud services in banks and financial institutions in Poland, says Adam Tymofiejewicz, director of consulting at Comarch, one of the two largest IT integrators in Poland.

What is limiting wide-scale cloud adoption in Poland?

Cloud helps to reduce total cost of investment and facilitates the use of IT infrastructure at scale, says Dariusz Kowalski, hosting manager at Home.pl, the hosting company that provides cloud services too.

But financial services enterprises are one of the most demanding IT customers. They usually want 24/7 technical assistance from the cloud service providers, and a high level of security and availability, Kowalski says.

Financial institutions also insist that their cloud services provider holds the appropriate certificates and complies with the framework outlined by the financial regulatory authorities.

Banks and insurance companies have some non-technical requirements in their wish list too, says Kowalski. They want the cloud provider to be an established, trusted player with experience in the market. “Banks rarely decide to entrust their data to players of unknown reputation and operating in a non–transparent way,” Kowalski adds.

Banks’ cautious approach to the cloud is the result of the regulations that are special, formal and more rigorous than other industries.

At the beginning of 2013, Polish Financial Supervision Authority (PFSA) issued “Recommendation D”, which increases the requirements for “managing risks associated with IT and telecommunication systems used by banks”. Banks in Poland are required to deploy advice contained therein until the end of 2014.

The purpose of “Recommendation D” is to ensure that procedures at banks meet information technology standards – Code of ITIL (Information Technology Infrastructure Library), standards of group 27000, COBIT (Control Objectives for Information and Related Technology) or ISO 22301.

Although “Recommendation D” does not have the status of a legal norm – it is merely advice – the banks cannot afford to ignore it. Failure to implement "Recommendation D" or its partial introduction can cause real losses, PFSA warns.

“Among the risks are IT systems failures, decreased resistance for outside attacks and improper actions of a mechanism to inform the management about current challenges that should be faced by bank,” says Dariusz Stefaniuk, project manager at Baker Tilly International, a consulting company.

For the second year in a row, banks’ CIOs devise their IT strategies around “Recommendation D” to please the board of directors. As a side effect, there is a weakened interest in implementing a cloud-based infrastructure.

But banks are far from steering clear of the cloud because of its rising dominance within other segments such as retail, small and medium enterprises (SMEs) and the tech sector.

Despite caution and regulatory requirements, some enterprises within the banking sector have taken their first steps into cloud and are yielding its benefits.

Poland still lacks special law on cloud computing. But it can be argued that the current law is not an obstacle for cloud deployment, even within the banking and financial segment. It may be considered even favourable to cloud services, but on the condition that the use of IT outsourcing improves the quality and effectiveness of banking services.

Banks deploying cloud services have already met requirements of the “Recommendation B” issued by PFSA in 1997. “This document recommends reduction of fixed assets and at the same time, investing in improvement of service quality, which is consistent with the basic principles of cloud computing,” says Robert Kobylanski, chief executive of CK ZETO, a subsidiary of Asseco, the largest IT company in Poland.

Kobylanski estimates that more activities of banks will be supported by cloud-based solutions in near future. It is difficult not to agree with such a forecast, especially because it is also supported by official data and the predictions of ICT market experts who are buoyant about cloud adoption in Poland.

In 2012, cloud computing services were used by around 7% of companies in the financial services sector – according to the Central Statistical Office of Poland report “Information Society in Poland 2009-2013”.

By 2015, the savings of financial sector in central and eastern Europe will reach €183bn. It will be caused by data processing systems in the cloud – predict analysts of the Centre for Economics and Business Research in London.

How cloud is seeping into Polish banks’ IT architecture

Based on previous experience in implementing an IT cloud model in Poland, Kobylanski argues that the transformation of IT systems in financial institutions begins with the spreading of infrastructure as a service (IaaS) and platform as a service (PaaS). 

“Why? From the user point of view, the biggest advantage of cloud services is an immediate, non-investment access to computing power – server resources, applications systems, virtualisation, storage resources, disk arrays, backup and archiving,” Kobylanski says.

IT resources in the cloud enable IT specialists within banks to use rented compute power that, at the same time, complies with the standards, emphasises Kobylanski.

A good example of it can be found in the work of developers during cloud systems testing and improving, he points out.

From the user point of view, the biggest advantage of cloud services is an immediate, non-investment access to computing power

Robert Kobylanski, CK ZETO

With the increase of trust in security of cloud services for banks and decrease in prices, more advanced banking functions will be processed in the cloud, experts say.

Dariusz Wichniewicz, director of telecommunications services at ATM, the company running the largest datacentres in Poland, agrees with Kobylanski.

Financial institutions, including banks, for several reasons, prefer a private cloud, although it requires more financing than public cloud. However, it gives greater control over the data. In this model, banks do not have to share resources with other customers of the cloud, which gives greater comfort and safety, says Wichniewicz.

The Polish market of banking applications available in the cloud is getting more interesting, says Radoslaw Maczynski, vice-president of DomData, an IT company. He adds that in addition to universal tools such as office suites, DMS (Document Management Systems) and solutions to create and manage backups, now providers even offer tools to support typical banking processes, for example, servicing debt collection.

Small and medium-sized financial institutions lead the way 

Currently, there are 129 small and medium-sized cooperative banks that derive the greatest benefits of the cloud. While the large commercial banks are still considering the use of cloud computing, cooperative banks have been using the benefits of cloud computing for several years. Every month, 2.5 million banking transactions in this vertical are processed in the cloud.

“We believe in cloud computing model, as it is financially attractive for us. It enables us to apply the most modern IT solutions, which we could not afford if we were to use traditional approach such as an in-house IT,” says Eugenia Pokorska–Sawczuk, chief executive of the Cooperative Bank in Tczew.

“Today, because of the cloud, our competitiveness is growing, and with it the ability to attract new customers,” says Pokorska–Sawczuk.

The footsteps of small institutions follow the big banks. These, although recognising the advantages of cloud services, need to have much more time and money for implementation and require a culture change.

Bank for Environmental Protection (BOS – Bank Ochrony Srodowiska) moved its entire communication infrastructure to the cloud in 2012. Integrated Solutions, a subsidiary of Orange, one of the four largest mobile network operators in Poland, implemented Unified Communications as a Service (UCaaS) at BOS.

Today, nearly two thousand employees of the bank, in its headquarter and in local offices, use wired and mobile telephony, conferencing systems, communication devices and tools served from the cloud.

“UCaaS helps us not to worry about investing in expensive hardware and software. Thanks to pay-as-you-go and pay-as-you-use models, we pay only for these IT resources that we actually use,” says Adam Grzbieluch, vice-president of BOS.

“The transfer of care for network and telecommunications equipment to outside specialists is not only a source of savings. This is the first step to all further improvements in the area of technological solutions quality, optimising the cost of services and better management of IT staff in our bank .”

The first bank in the cloud

Idea Bank, subsidiary of Getin Bank, specialises in serving small businesses. It is the first bank in Poland that decided to implement a model of banking services that is fully provided in the cloud (Idea Cloud). This project is being implemented in cooperation with Efigence, widely unknown IT developer for the financial institutions. Start of this cloud bank is announced for the end of September this year.

“I expect Idea Cloud will gain 100,000 to 150,000 thousand clients during the first year of operation , says Jaroslaw Augustyniak, CEO of the bank.

Users of Idea Cloud will be able to issue invoices, declare and pay taxes, make business payments, monitor receivables, take loans and others.

“Idea Cloud is an intelligent system that remembers everything that a busy entrepreneur can forget. The system automatically builds a history of relationships with customers and partners, helps to forecast cash flows of a business. It also includes a virtual safe with encrypted access, dedicated to all types of electronic data,” says Jakub Wojciechowski, project manager of Idea Cloud.

In the next three to five years, technological innovations in the banking sector will be closely linked to the implementation of the cloud solutions, predicts Augustyniak.

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