Spanish bank Santander is taking on the IT giants at their own game by offering data storage to its corporate customers: But is this just a side show to inject confidence in an industry facing increasing competitive tensions.
While banks have the trust of their corporate clients, they cannot compete with companies such as Amazon and Google when it comes to scale for services such as data storage.
But Santander chairman Ana Botín recently said banks are perfectly positioned to offer corporate services such as data storage.
“As I think, 'How I am going to compete with all these new technology players?' I can offer the same services as some of these big guys,” she said. “As a small business or private individual customer, where you lodge your information is something you should think about. One of the things banks have is trust and resilience and, with all the cyber risk, that is incredibly important.”
Botin had a point. The fact that people perceive banks as safer places to store data, and that banks are heavily regulated, could make them competitive. Research of more than 6,000 consumers from Bizrate Insights found 72% of respondents trusted their bank with card details. In comparison, 45.4% trusted Amazon, 21.4% Apple and 12.9% Google.
But this might be a misconception. PayPal has 157 million active users, which is more than most banks, while Facebook has more than one billion users and holds a lot of sensitive data. Meanwhile, Amazon boasts more than 244 million users. In comparison, Santander has 107 million customers, Lloyds Bank has 30 million, HSBC has 52 million and Barclays has 48 million.
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Santander well-placed to offer storage
Jean Louis Bravard, IT outsourcing consultant and former CIO at JP Morgan bank, agreed this presents an opportunity for a bank such as Santander. He said that, in banking terms, Santander is an IT leader. It has invested heavily in IT and has used it to its advantage. It uses a banking platform developed in-house, known as Partenon. “The technology is not hard for a company like Santander and, if it can deliver the service at a low cost, it could be interesting,” said Bravard.
Andrei Charniauski, research manager with IDC Financial Insights, said Santander has nothing to lose. “I think this is a pretty adventurous enterprise for Santander,” said Charniauski.
“On one hand, they will use existing infrastructure, so it’s just a matter of packaging the product and marketing it – and they can offer it directly to their commercial clients. On the other, I’m not sure if take-up will be huge, unless this is going to be significantly cheaper than offerings from traditional providers.”
“On balance, I think Santander will not lose anything by offering it as part of their banking packages – so I guess it’s worth trying. But I’m pretty sure that traditional players will not be in danger at all.”
Plummeting storage prices
Suppliers are lowering their cloud storage prices all the time.
According to a recent report from RBC Capital, Amazon Web Services' (AWS) price per gigabyte (GB) of RAM was $42 in October 2013 and fell to $25 in December 2014. In the same period, Google’s price dropped from $52 per GB RAM to $32; IBM Softlayer reduced its price from $55 to $32; and Microsoft Azure's fell from $46 to $34.
Price is highly elastic when it comes to raw cloud computing, with price cuts leading to increased demand but overheads for suppliers increasing at a fraction of the rate.
Gareth Lodge, analyst at Celent, said it was not clear what Santander plans but financial services firms have done this type of thing before with little success. “What they all have in common is very low take-up.”
“We’ve been talking cloud for years, and vaults like this for almost as long. The question then is why now, and why no take-up? Our research at the time suggested consumers didn’t trust the banks, though we think that was more on a security/technology angle, rather than the more broader definition of trust.”
If a bank also holds interesting data for a lot of corporate customers – such as HR data, financials and product designs – the hackers only need to get access to the bank to get at all the customers' data
Disadvantages of banks' IT services
One source said IT companies can provide better IT services than banks can. “That's why the banks are always looking to outsource and offshore their IT. Going the other way doesn't make sense unless Santander has outsourced this service anyway and is effectively acting as a reseller,” he said.
He said storing more corporate data could make the bank an even more attractive target for cyber criminals. “The banks are already juicy targets for cyber attacks and adding yet more data into the scope makes them even more attractive," he said.
"If a bank also holds interesting data for a lot of corporate customers – such as HR data, financials and product designs – the hackers only need to get access to the bank to get at all the customers' data as well. While the data remains split out across multiple firms and platforms, it is harder for the hackers to get at it.”
The threat to banks from Apple, Facebook, Amazon and Google
He added IT firms can offer the services cheaper with stronger development progression, support and security.
Speaking to the Financial Times, Botin confirmed his view that the big four technology companies – Apple, Facebook, Amazon and Google – present genuine threats to banks. “If you think about the big guys now, it is not the banks, it is these four large tech companies that are worth more than us. They have more cash. They have less regulation.”
One senior banking IT executive said: “Santander’s plan is a gimmick as the banks clutch at straws to re-invent themselves. Barclays with life skills and coding for kids is a nice idea but a bit of a side show.
“Coffee shops in branches was another one. I believe the future of financial services is 100% IT driven and the banks have been too slow to recognise this. I can see how an IT company can get into financial services but I cannot see banks becoming IT companies.”