Banks are built on massive IT infrastructures that process huge volumes of data on a daily basis. The cloud’s most obvious benefits will enable banks to keep up with technology changes while reducing costs.
The digitisation of services is making it difficult for banks to ignore the cloud.
But concerns over a potential loss of control, availability and data security make moving to the cloud a massive leap in a heavily regulated sector.
At a recent meeting at the Financial Services Club (FS Club), Chris Skinner, chairman at the club, said the cloud is still misunderstood, despite it being a talking point in financial services for years. In 2009 the FS Club hosted a meeting about the cloud in financial services and 165 people attended.
“Cloud computing in financial services has been a hot topic for some time and you would think we would know what cloud is all about but we don’t,” said Skinner. “We still have a lot of misunderstandings and ambiguities.”
Paul Hinton, commercial technology partner at Kemp Little, talked about the cloud in the legal sense.
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He said the cloud is diverse and constantly evolving. No sooner do legal terms get to grips with one aspect and they must move on to the latest cloud trend. “SaaS is so commonplace we now understand how to do it and what it should look like from a legal perspective. But the cloud is much more than this.”
Utility computing is the next phase for the cloud with services being bought in a similar way to electricity, according to Hinton. “But banking and the things we buy through banking, from what I understand, are nowhere near that stage yet.”
There are lots of different pieces of legislation that can apply to the cloud, but there is nothing specifically about the cloud, said Hinton. “From a legal point of view the same rules apply to cloud outsourcing as outsourcing.”
He said there are common concerns among businesses. “These are potential loss of control, availability and access to data, data security, data location, auditing and exits.”
“There are a lot of efforts to create [legal] standards and hopefully we will have them soon. This is good but they are not here now and may not be for a while,” added Hinton.
A spokesperson at a major cloud service provider then talked about what it is doing in financial services.
He said there is a lot of ambiguity around the cloud but summed up what it meant to his company.
There is no reason why today banks should not be using the cloud in some way
“A cloud service should be something available over the internet, no up-front costs, pay as you go and with no long-term commitment.”
There is no reason why today banks should not be using the cloud in some way, he said.
“I do not see a huge difference in how financial services companies adopt the cloud – they just have a different approach.”
He said when it comes to highly regulated services with customer data it takes a long time to move to the cloud. But he said there are many areas in which finance firms can start using the cloud easily.
“We look for the low-hanging fruit, not the most sensitive data. Finance firms can start to benefit from features, such as development and testing, because they don’t host sensitive data.”
“High-performance computing is another option because it normally involves systems that encrypt data. This means results can be delivered quicker,” said the spokesperson.
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He added that developing new services can be done in the cloud faster and more cost effectively because the cost of failure of a new service is reduced. “With new lines of business you can test it out and if it doesn’t work you turn it off and there are no assets costing money.”
He said that the suppliers can become compliant with regulations so every company using it is also compliant, when using it.
The next speaker was from a large payments processing firm. He said maintaining trust and delivery to customers is vital.
He said customers expect their money when and where they chose.
“If you are running retail financial services you have to put the customer first. The customers get the cloud and they have certain expectations for service delivery,” he said.
He agreed that the cloud enables effective development alongside cost cutting.
“The cloud is a huge layer of facilitation for new services. Banks also need to manage costs more effectively, the cloud is faster to implement and cheaper so what is there to hate about it?” said the spokesperson.
The next speaker was from a small next-generation cloud-only financial services firm.
The company is a totally cloud-based financial service. It has taken a small piece of the banking chain, in this case international payments, and put the entire process on a cloud platform to offer to banks.
The cloud is just another form of outsourcing
New customers, which are financial services firms, only take two weeks to set up.
“We take a huge amount of cost out of the process," said the spokesperson.
The company makes 10,000 transactions per day. “Using the cloud is no different from outsourcing. Offshore companies in India have customer data and there is uncertainty about security.”
He said there is still a "not invented here" attitude holding cloud uptake back. “Technology departments at banks want to build their own systems. It is not a rational debate but an emotional one. Some of these IT departments do not even use Agile methods and still use Waterfall techniques.”
He said you have to get these people to accept change and not fear the worst.
Former Accenture executive, Jim Odell, now a consultant at Kemp Little, then talked about hybrid IT departments and how organisations have to have a mix of in-house and outsourced IT.
“The cloud is just another form of outsourcing,” he said.
His advice to finance firms considering the cloud was: never outsource things that are not already fixed, make sure you know how to manage suppliers, don’t put everything in the cloud it can be expensive, and plan to leave when you sign a now contract.